WASHINGTON (CNNfn) - The Securities and Exchange Commission is taking a closer look at how credit rating agencies function and debating whether new rules are needed to improve how the agencies function in the marketplace.

Participants in a hearing Friday voiced concerns that there are too few agencies competing, that they lack transparency in how they determine their ratings, and that the agencies have conflicts of interest with the companies they rate.

Credit rating agencies are empowered under law to gather information from corporations that is not available to the public, but the agencies are not allowed to use the data for any purpose other than determining their ratings. The companies being rated are given an exemption from normal financial disclosure rules for this purpose.

"It's crazy," said Sean Egan, president of rating agency Egan-Jones. "There's no reason why a couple of private firms should be given market information ahead of everybody else."

The three rating firms that currently have governmental accreditation as Nationally Recognized Statistical Rating Organizations (NRSROs) are Moody's, Standard & Poor's and Fitch Inc.

When agencies change their rating based on non-public information, investors want to know why.

"Why are they doing that? What is it that they know that is not disclosed to us?" asked Cynthia Strauss of Fidelity Investments. "I just don't see the benefit [of the exemptions] for investors."

But company executives argue that without the financial disclosure exemption they get for sharing private information with the agencies, they would be forced to simply provide less information, hurting the quality of the rating.

"There is no way we would release confidential product plans for future years and data of that type which could be used by our competitors," said Malcolm Macdonald, vice president of finance and treasurer of Ford Motor Co. "Applying the exemption from [fair disclosure], I think, improves the rating process."

Some at the hearing questioned the appearance of conflicts of interest. The majority of fees collected by NRSRO agencies are from the companies they rate. Also, agency officers are not barred from serving on the boards of publicly traded companies.

"Moody's chairman, Clifford Alexander, was on the board of WorldCom up until last year," Egan said. "The biggest bankruptcy in U.S. history, and the chairman of Moody's was on the board. There's no way that should happen. He also shouldn't be on the board of the National Association of Securities Dealers. They're supposed to be independent."

A representative from Moody's was not present at Friday's hearing.

All five SEC commissioners, including outgoing Chairman Harvey Pitt, participated in the roundtable discussion, and the agency will not hold votes or propose any new rules yet. A second day of hearings is scheduled for Nov. 21.

The SEC review was mandated by the Sarbanes-Oxley law, created in July to prevent future financial catastrophes.

Credit rating agencies have been criticized for not downgrading their ratings on troubled companies like Enron and WorldCom sooner than they did.