A critic of the leading rating agencies believes they should introduce tobacco-style warnings on the securities they rate in order to restore confidence in the industry.

Sean Egan, managing director of Egan-Jones Ratings, said the issuer-supported business rating model, in which companies pay the agencies to rate their debt securities, had led to a breakdown in faith among investors.

“People don’t believe the ratings. Ratings agencies are guilty of false advertising. They should provide a tobacco-style warning with their ratings,” Mr Egan said in an interview with the Financial Times.

The criticism is likely to be brushed aside by the rating agencies, given that Egan-Jones has been trying to grab a greater share of the ratings business in recent years, hitherto with only limited success.

However, the comments could gain traction in the wider investment community now since they come at a time when politicians, investors and regulators are becoming more outspoken in voicing their doubts about incumbent ratings groups.

In particular, the credit turmoil has sparked a plethora of allegations that the rating agencies have failed to produce credible and timely analyses of products such as subprime securities – partly because their interests have been closely entwined with those arranging and issuing the securities.

Egan-Jones is a small ratings agency and derives its revenue from investors who pay for a rating.

In contrast, Moody’s and S&P are paid by issuers of debt to rate a security, and Mr Egan says investors should be aware of this type of conflict.

In recent months, investors and legislators in the US and Europe have been critical of the role played by S&P, Moody’s and Fitch in assigning high ratings to mortgage bonds that have sharply declined in value this year.

The big rating agencies have stressed that ratings are based on currently available information. They say investors should use a rating as a guide in conjunction with other factors.