THE two major financial ratings agencies have reacted very differently to tougher regulatory scrutiny stemming from the spotlight being cast by the global financial crisis on their poor performance and structural conflicts of interest. Our local regulator last week followed the lead provided by offshore regulators and moved to tighten the rules under which these bodies operate. Standard & Poor's reacted this week by announcing it would pull out of rating securities that were available to retail investors, saying that it could not accept the new onerous rules. There were suggestions that Moody's would follow suit. Instead it announced yesterday that it would effectively downgrade all the Australian and New Zealand banking hybrids that it had previously rated. Rather than calling this a response to new ASIC requirements, the Moody's announcement suggests that bank hybrids are riskier due to general regulatory changes applying to financial institutions - around capital and liquidity - in the wake of the crisis.