WASHINGTON (Reuters) - U.S. banking regulators on Tuesday eased trading regulations for Wall Street banks, giving them one of their biggest wins under the Trump administration but drawing criticism from consumer activists who warned of potential risks to taxpayers.

FILE PHOTO: Jelena McWilliams, chairman of the Federal Deposit Insurance Corporation, on Capitol Hill in Washington, U.S. January 23, 2018. REUTERS/Aaron P. Bernstein/File Photo/File Photo

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) approved the revamped version of the so-called “Volcker Rule,” which aims to ban lenders that accept U.S. taxpayer-insured deposits from engaging in proprietary trading.

The changes, first proposed in May 2018, followed years of lobbying by banks, including Goldman Sachs Group Inc GS.N, JPMorgan Chase & Co JPM.N and Morgan Stanley MS.N, which have long complained the rule is too vague and complex.

The new rule gives banks more leeway in terms of trading activity and simplifies how banks can tell if that trading is permitted by law.

While many regulatory experts have agreed the prior rule was too cumbersome, the changes were criticized by consumer groups and Democratic lawmakers who say a rewrite could put taxpayers at risk.

FDIC Commissioner Martin Gruenberg, a Democrat who backed the Volcker rewrite proposed in May 2018, voted against the final rule Tuesday, saying it would “effectively undo” the rule’s protections.

In particular, he warned that the new rule narrows the definition of banned trading in a way that could free up banks to engage in riskier bets with potentially billions of dollars in financial instruments.

The other three FDIC board members, all Republicans, voted in favor.

Democratic Representative Maxine Waters, who chairs the House Financial Services Committee, accused regulators of undercutting a cornerstone of Wall Street reforms introduced by the 2010 Dodd-Frank law.

“The final rule published today would curtail prohibitions in a manner that Congress never intended,” she said in a statement calling on other regulators to halt the project.

Analysts say the final rule, which is significantly different from the proposed 2018 version, could also be vulnerable to legal challenges.

The rewrite aims to clarify which trades are exempt from the ban, such as when banks facilitate client trades and hedge risks, and to expand those exemptions. The final rewrite scraps a proposed new test for identifying proprietary trading that banks complained would have made the rule even more complicated.

That proposed “accounting test” was meant to replace a more subjective test that aimed to identify if a trader intended a trade to be speculative. But banks argued it could apply to a host of additional financial instruments not meant to be covered by the rule.

The final rule scraps that proposal for large Wall Street firms, instead simplifying the original test and only applying it to much smaller banks.

At the same time, the rewrite simplifies a separate part of the rule which makes it easier for banks to invest in hedge funds or private equity funds. Regulators said they expect to propose further easing of the “covered funds” aspect of the rule, including for foreign firms, later this year.

The banking industry hailed the rule, while calling for regulators to expedite that additional relief.

“We urge the regulators to finish the job of Volcker Rule reform,” said Kevin Fromer with the Financial Services Forum, an industry group that represents the CEOs of the nation’s biggest banks.

The rule will become effective on Jan. 1, 2020, but banks will have one year to comply.

The OCC and the FDIC are two of five regulators charged with implementing the rule. The others - the Federal Reserve, the Securities and Exchange Commission, and the Commodities Futures Trading Commission - are expected to approve the new rule soon.