EU ratings watchdog says competition still patchy

* ESMA wants powers to oversee non-execs at CRAs

* ESMA advises against deleting all references to ratings (Adds more quotes by ESMA, background)

By Huw Jones

LONDON, Oct (HKSE: 3366-OL.HK - news) 2 (Reuters) - Attempts to boost competition in credit ratings has made little impact in parts of the European Union and stronger enforcement powers are needed, the sector's regulator said on Friday.

The European Securities and Markets Authority (ESMA) regulates 24 ratings agencies currently authorised in the EU, a sector dominated by the "Big Three", Moody's, Fitch and Standard & Poor's.

ESMA was asked by the EU's executive European Commission for advice for a review of EU laws governing rating agencies.

"The high fees charged and regular fee increases imposed by some credit rating agencies suggest there may be little effective competition for the provision of credit ratings in some specific market segments within the EU at present," ESMA said in a report.

"While it is encouraging to see that changes are taking place, we are realistic and know there is still work to be done which is why we have made recommendations relating to further supervisory powers regarding the appointment of independent non-executive directors and enhanced enforcement powers," ESMA said.

Ratings agencies came under scrutiny in 2007 when highly-rated securitised debt based on U.S (Other OTC: UBGXF - news) . home loans became untradable, helping to trigger a global markets meltdown.

The EU has passed three sets of laws to curb the market's heavy reliance on ratings and increase competition. Some European lawmakers believe ratings agencies should be run like utilities.

ESMA's report found that the use of ratings was still enshrined in national and EU laws, and in collateral rules of some central banks.

The United States passed a law requiring the removal of mandatory or "mechanistic" use of ratings but regulators there have found it difficult to find alternatives.

ESMA's report will be used by the EU to decide whether it should follow suit, but the regulator has come out against doing so.

"It (Other OTC: ITGL - news) may not be practical to remove all of these references and future action should focus on mitigating the mechanistic reliance on credit ratings rather than removing them from legislation entirely," ESMA said. (Reporting by Huw Jones, editing by Carolyn Cohn and Susan Thomas)