EU launches new restrictions on proprietary trading

The EU has unveiled plans for new restrictions on proprietary trading as part of a package of reforms to Europe's banking sector. The largest banks will face bans on proprietary trading in financial instruments and commodities.

The new rules are intended to reform bank structures and reduce risk in the Europe's financial system after years of turmoil.

The model being proposed is being seen as the EU's answer to the Volker rule which restricts proprietary trading.

An EU statement released on Wednesday said:

Today, the European Commission has proposed new rules to stop the biggest and most complex banks from engaging in the risky activity of proprietary trading. The new rules would also give supervisors the power to require those banks to separate certain potentially risky trading activities from their deposit-taking business if the pursuit of such activities compromises financial stability.

Michel Barnier, commissioner for internal market and services described the proposals as, "the final cogs in the wheel to complete the regulatory overhaul of the European banking system."

The reforms are not as onerous as many had feared. After concerns were raised by the banking industry, proposals to force the separation of retail banks and investment banks were abandoned.

The plan is unlikely to be adopted any time soon due to imminent dissolution of the European parliament ahead of elections in May.