The European Union (EU) unveiled Tuesday proposals to toughen regulations on credit rating agencies (CRAs) to prevent them from "increasing market volatility further."

"Ratings have a direct impact on the markets and the wider economy and thus on the prosperity of European citizens. We can't let ratings increase market volatility further," said Michel Barnier, European Commissioner for Internal Market and Services.

Though the most controversial proposal, which suggests the credit rating of a country can be suspended in "exceptional circumstances", had to be postponed due to strong opposition from some EU member states and CRAs, Barnier said the EU had put forward plans to toughen the regulatory framework for CRAs.

Speaking at a press conference following an EU meeting, Barnier said the proposals were designed to "reduce the over-reliance on ratings and improve the quality of the rating process."

The proposals, which need to be approved by the European Parliament and each EU member states, have outlined a general obligation for investors to do their own risk assessment.

"Credit rating agencies should follow stricter rules, be more transparent about their ratings and be held accountable for their mistakes. I also want to see increased competition in this sector," Barnier told reporters.

The proposals require CRAs to disclose more and better information underlying the rating decisions so that investors would be better informed to make their own judgments.

CRAs would also have to consult rating decision issuers and investors on any intended changes to their rating methodologies, and such changes would have to be communicated to the European Securities and Markets Authority (ESMA) which would check the legitimacy of the move.

The reform package came as the most aggressive effort by the EU to rein in an industry that some European leaders have blamed for exacerbating the sovereign debt crisis with "subjective" rating decisions.

Greece, Ireland and Portugal all suffered downgrades that sharply pushed up their bond yields over the past two years, before asking for international bailouts.

To mitigate the impact of each rating, it is proposed that EU member states would be rated more frequently, from the current every 12 months to every six months, and investors and member countries would be informed of the underlying facts on each rating.

Under the proposals, sovereign ratings should only be published after the close of business and at least one hour before the opening of share markets in the EU to avoid market disruption.

Days after an erroneous downgrade of France by Standard & Poor's who cited "technical errors," the EU proposals also made CRAs more accountable for the ratings they provide.

"A CRA should be liable in case it infringes, intentionally or with gross negligence, the CRA Regulation of the EU, thereby causing damage to an investor having relied on the rating that followed such infringement," said one proposal.

Investors suffering losses under this circumstance should bring their civil liability claims before national courts, and the burden of proof would be borne by the CRA, according to the proposal.