Banks have long complained that the rule, which took four years to write and runs at more than 1,000 pages, is vague and complex, creating a disproportionate compliance burden and limiting their ability to facilitate investments and hedges for investors.
"This revision is likely to make only modest changes to the rule that would benefit banks at the margin. It will not mark the wholesale return of bank proprietary trading. The fundamental framework remains," said Isaac Boltanksy, director of policy research at Compass Point Trading & Research in Washington.
Still, Wednesday's proposal should provide clarity over how banks can show trades qualify for certain safe harbors, especially when facilitating client trades, according to people familiar with the matter. Reuters had reported the expected changes in February.
JPMorgan Chase chief executive Jamie Dimon was once quoted as saying traders would need a lawyer and a psychiatrist by their side in order to prove their trading intentions complied with the rule.
The proposed changes will also likely tailor compliance requirements to an institution's size and alter aspects of the rule so it no longer encroaches upon some overseas firms, the people said.
JPMorgan is looking forward to more clarity on its requirements and to spending less to prove compliance, Daniel Pinto, chief executive for the bank's corporate and investment banking business, said at an investor conference on Tuesday.
But the Volcker Rule proposal "is not going to change too much what we do and how we do it," Pinto said. Banks of all sizes, as well as private-equity funds and investor groups, have lobbied hard for the rule to be simplified, according to public records and sources. U.S. Congress wrote the broad strokes of the Volcker Rule into law, but five regulators oversee the rule and wrote its finer details.
Industry attempts to persuade Congress to overhaul the Volcker Rule so far have failed, but regulators agree after three years of trying to enforce it that revisions are necessary to help all parties.
They have been working on tweaks ever since the rule became effective in 2015, but efforts behind the scenes to draft a new rule accelerated over the past two months, the sources said.
The Fed has been leading the efforts and other regulators are expected to propose the same changes in the coming days.
Some bank lobbyists hope for another opportunity to push for a more radical overhaul. But such changes could take years, analysts said.
"The only way that the Volcker Rule can be fundamentally altered is if Congress chooses to do so, and that clearly isn't happening this year or anytime in the near future," said Boltansky.