Brussels - The European Commission on Wednesday proposed tough rules designed to improve the functioning of credit rating agencies, which have been partly blamed for the global financial crisis.

The proposals, put together by European Internal Market Commissioner Charlie McCreevy, are designed to "restore market confidence" by imposing strict conditions on rating agencies wishing to operate in the European Union.

If approved by member states and the European Parliament, the proposals will place rating agencies under the control of European supervisors.

Potential conflicts of interest deriving from the fact that agencies are paid by the banks whose debts they rate will be tackled by forbidding them to act as consultants.

Agencies will not be allowed to rate financial instruments if they do not have good enough information on which to base their ratings on, and they will have to disclose "the models, methodologies and key assumptions on which they base their ratings," a commission statement said.

"Until now, there is a voluntary code of conduct in place. This code seems to me to be a toothless tiger," McCreevy said.

"These very exacting rules are necessary to restore the confidence of the market in the ratings business in the European Union," he said.

Credit rating agencies have been widely blamed for failing to spot many of the bad loans that have been circulating in the financial world, leading to the current global credit crunch.

"It would be unjust and insensitive to single out the rating agencies as the single cause for the financial turbulences, but they have played their part," McCreevy said. (dpa)