The European Commission has published a legislative proposal that would prohibit certain large EU banks from engaging in selected types of risky proprietary trading. The proposal would also potentially require such banking groups to push out and ring-fence certain other high-risk trading activities. The UK, France and Germany have already adopted separate national ring-fencing legislation, while in the US the Volcker Rule, which bans proprietary trading, is now in final form. International banking groups will need to continue work on restructuring their businesses to comply with the overlapping and at times inconsistent sets of rules. This note summarises the key provisions of each measure.

Introduction -

The European Commission has published a draft regulation (the “Proposed Regulation”) to prohibit certain large and systemically important banks from proprietary trading. The Proposed Regulation also gives national regulators in the EU various powers to require ‘risky’ trading activities (including market-making, securities underwriting, securitisation and complex derivatives) to become ring-fenced within those institutions into a separate legal entity from the retail bank. A retail bank is one that takes insured deposits under the Deposit Guarantee Scheme Directive.