EU internal market commissioner Charlie McCreevy yesterday attacked credit-rating agencies such as Moodys and Standard & Poor's (S&P) for their role in the subprime mortgage crisis, but he issued a robust defence of the hedge-fund industry against demands for tighter regulation.

The commissioner, who is responsible for drafting pan-European financial legislation, hit out in particular at the rating agencies' conflicts of interest: "On the one hand, they act as advisers to banks on how to structure their offerings to get the best mix of ratings. On the other, credit-rating agencies provide ratings that are widely relied upon by investors."

Mr McCreevy called for "clear, robust and methodological rules and principles" to be rigorously applied. His comments came as Moodys downgraded or started to review its ratings on three Dublin funds which have suffered in the subprime fall-out.

The agency downgraded two of its ratings on IFSC-based Cheyne Finance and placed another two on review for possible downgrade. Receivers have been appointed to the fund after it was last week forced to sell off assets to meet its debts.

Moodys also said it may downgrade ratings on Dublin-based Kestrel Funding, citing "the potential impact of crystallised losses following asset sales". Kestrel is managed in New York by WestLB. Another downgrade threat hangs over Rhinebridge, a Dublin-registered fund which is managed in London by IKB.

Ratings agencies have come under fire on both sides of the Atlantic for their slow response to the crisis. Moodys and S&P started downgrading their ratings of mortgage-backed securities only this spring, many months after banks had first warned about the potential crisis.

Mr McCreevy also tried to take some of the heat off the hedge-fund industry, dismissing the growing chorus of critics urging tougher rules and more transparency requirements for the funds. - (Financial Times Service)