Rating agencies to face tougher industry code

PARIS May 28 (Reuters) - Credit rating agencies will be banned from helping to design products they also grade as part of a tougher industry code of conduct to tackle issues raised by the U.S. subprime mortgage crisis such as conflicts of interest.

The agencies include Standard & Poor's, a unit of McGraw Hill Cos Inc (MHP.N); Moody's (MCO.N); and Fitch, part of Fimalac (LBCP.PA).

"Credit rating agencies should prohibit credit rating analysts from making proposals or recommendations regarding the design of structured finance products that the CRA rates," the International Organisation of Securities Commissions (IOSCO) said in a statement.

IOSCO drew up in 2003 a code of conduct for the ratings industry to apply, and at a meeting in Paris this week beefed up the code in light of lessons from the global credit squeeze.

"I believe that these changes to the code of conduct will help to address a number of issues that have arisen as a result of the current credit crisis regarding how the credit ratings for structured finance products are developed by credit rating agencies and relied upon by issuers and investors," said Michel Prada, chairman of IOSCO's technical committee. (Reporting by Huw Jones; Editing by Dale Hudson)