Brussels is set to ease flagship financial reforms so big European banks are not automatically forced to split lending operations from risky trading.

In a draft European Commission plan, the separation is no longer mandatory and would be less costly and restrictive than first envisaged. National supervisors are given wide discretion.

In a further twist, the commission adds its own “narrowly defined” version of the US Volcker rule, which outlaws proprietary trading. The ban applies to about 30 big banks, regardless of whether their deposit-taking part is fenced off.

The proposals stem from the 2012 Liikanen report on the structure of banking. They are the finale to a welter of EU reforms since the 2008 financial crisis, which have raised capital standards, introduced common rules to wind up failed lenders and launched a euro zone-based banking union. While deliberations on Liikanen are continuing, early drafts suggest Michel Barnier, the EU commissioner responsible, is opting for a middle way between international attempts to make bank structures safer and less complex.

Like recent reforms pursued in France and Germany, it allows a bank's supervisor to decide whether certain trading poses a "systemic risk" that should be separated. Supervisors will be able to force activities such as market-making and buying and selling derivatives to be placed in a separately capitalised entity.

Mr Barnier sees the reforms as necessary but tailored to avoid damage to the financing of the real economy and capital markets. But the revisions to Liikanen will be controversial. Sven Giegold, a German Green MEP pressing for structural reforms, said the rules "risk having no real effect on the banking sector apart from adding bureaucracy". – Copyright The Financial Times Limited 2014