* Financial sector too reliant on credit ratings from agencies
* G20 set mid-2015 deadline for plans to reduce reliance on ratings
* Financial Stability Board says deadline will be missed
* Finding alternative ways to assess risk proving difficult
By Huw Jones
LONDON, May 12 (Reuters) - Weaning the financial world away from heavy use of credit ratings is proving harder than expected as workable alternatives are taking time to put in place, global regulators said on Monday.
Leaders of the G20 group of leading economies pledged to end heavy "mechanistic" reliance on ratings in the financial sector after bundled loans based on U.S. mortgages became untradable in 2007 despite being highly rated, triggering a global financial markets and banking meltdown.
Credit ratings are also used to quantify risks at banks and determine how much capital they should hold, but finding alternatives to ratings, such as asking investors to do their own credit assessments on products sold by banks, has been hard.
The ratings agency sector is dominated globally by the "Big Three": Moody's, Standard & Poor's and Fitch.
But some regulators privately worry that relying on banks' own computer models for quantifying risks is not a healthy alternative as such calculations can vary widely across the industry.
G20 countries have agreed to come up with national plans to reduce reliance on ratings from agencies by mid 2015.
"Most action plans do not include concrete suggestions or realistic timelines for establishing alternative standards of creditworthiness across financial sectors," the G20's regulatory task force, the Financial Stability Board, said in report.
The deadline is likely to be widely missed, the FSB said.
"The key challenge lies in developing alternative standards of creditworthiness and processes so that credit rating agency ratings are not the sole input to credit risk assessment," it said.
The United States has gone further than other countries with a legal requirement for regulators to strip references to credit ratings from financial market rules but the regulators have yet to fully implement this given the difficulties of finding alternatives.
The U.S. experience has prompted the European Union, which includes G20 members Italy, Germany, France and Britain, to defer until 2020 a decision on whether to copy the U.S. approach.
The FSB said the G20 pledge is not about eradicating ratings from agencies but about sound risk assessment which, in some cases, may allow using ratings from agencies as one indicator, among others, of credit risk. (Reporting by Huw Jones; Editing by Susan Fenton)