LONDON (Thomson Financial) - A private-sector advisory committee has suggested to the US Treasury that it should consider separating the rating and advisory functions at credit ratings agencies, the FT reported.

In the wake of the credit market turmoil, ratings agencies have been criticised by investors and lawmakers for giving high ratings to subprime securities, and failing to act quickly when borrowers began defaulting on loans backing the bonds, the FT said.

Eric Mindich, chairman of a private-sector advisory group formed Tuesday by the Treasury Department to develop recommendations on hedge fund operations, said investor confidence in ratings agencies has been 'severely damaged', and that their business model had inherent 'serious conflicts'.

'I do not think that the market can discipline ratings agencies sufficiently,' Mindich said in the FT.

Mindich said he was concerned that agencies issue ratings and also advise issuers of securities on how to secure better ratings.

He suggested it might be necessary to separate those functions, or to require agencies to provide more detailed disclosure of their contact with clients, the FT said.

Yesterday, the Securities and Exchange Commission chairman Christopher Cox told the Senate Banking Committee that the agency is investigating whether companies such as Standard & Poor's and Moody's were 'unduly influenced' by issuers and underwriters that paid for credit ratings.

Ratings agencies are already being probed in the European Union, after the EU Commission last month announced it would investigate their slow reaction to the subprime crisis.