The European Union's market watchdog said the world's top three ratings agencies must improve how they make changes in the way banks are rated.

The European Securities and Markets Authority (ESMA) said in its second annual review of the sector, which it regulates, that it focused on bank ratings because of their link with ratings of government debt, a focus of the euro zone crisis.

The review studied Moody's , Fitch and Standard & Poor's revealed "shortcomings in the processes of disclosure and implementation of changes in bank rating methodologies", ESMA said in a statement on Monday.

(Reporting by Huw Jones, editing by Laurence Fletcher)