Europe's chief financial regulator will tell its finance ministers today that he intends to table legislation in the autumn to regulate the activities of credit-rating agencies. The move by Charlie McCreevy, the European Internal Markets Commissioner, comes as Alistair Darling is expected to press for Brussels to begin a more wide-ranging review of the role of ratings agencies in Europe's broader system of financial regulation.

The Chancellor will tell fellow finance ministers that undue reliance on the agencies in regulations for banks and financial institutions has discouraged investors from making a proper, independent assessment of the risks they are taking, particularly with complex financial instruments.

Mr Darling wants an examination of the way in which European Union regulations are framed, which could lead to the prescribed role of ratings agencies being downgraded. A senior Treasury official said: “The use of ratings is ‘hard-wired' into many EU regulations.”

The Chancellor's intervention coincides with Mr McCreevy's decision to pursue legislation to control the rating agencies. The commissioner has been one of the agencies' strongest critics, insisting that they must shoulder much of the responsibility for the turmoil in the world's financial markets that began almost a year ago.

By instinct, Mr McCreevy prefers codes of conduct to hard legislation. However, he is exasperated by the lack of progress that the agencies are making. He has made clear in recent weeks that self-regulation is no longer an option. He has dismissed the International Organisation of Securities Commissions code, to which the rating agencies have signed up, as “a toothless wonder”.

Mr McCreevy is expected to be strongly supported by the French Government, which holds the current EU presidency, in his drive for legislation.

The commissioner is expected to follow a two-pronged approach. On one hand, he envisages creating an external supervisor to monitor the agencies' policies and procedures. On the other, he will press for reforms to cover rating content, including statistical modelling, the quality and remun- eration structures of analysts and the implementation of what he calls “an appropriate corporate culture”.

Mr McCreevy said in Dublin on Friday that incentive structures for bankers and others taking risks in credit markets had to be overhauled so that they would reward prudence through the ups and downs of credit cycles.

The draft legislation will have to be tabled in October at the latest if it is to be approved before European parliamentary elections next June.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax