UPDATE 1-French bank reform to cut wide swathe
* Brokers, insurers, consumer lenders face tougher oversight
* Marks Hollande's flagship attempt to overhaul sector
* Banks have until mid-2014 to earmark risky activities
By Lionel Laurent and Matthias Blamont
PARIS, Nov 28 (Reuters) - A French law designed to curb banks' risky trading also would tighten oversight of brokers, insurers and consumer-credit providers, according to a draft version obtained by Reuters.
It marks a flagship attempt by the administration of French President Francois Hollande to deliver on a campaign pledge to shake up the financial sector by separating speculative banking businesses from those deemed useful to the economy.
The centrepiece of the reform demands banks like BNP Paribas and Societe Generale put their proprietary trading activities and financing for certain types of hedge funds and private equity into separately regulated entities, according to the draft law due to be unveiled in December.
These prop-focused entities will be banned from high-frequency or commodity-derivatives trading. C lient-related activities like market-making, he dging and other investment services will be spared, as will banks' own investment and cash-management operations, ke eping them with the parent group.
However, non-bank entities like securities trading firms and brokerage houses will also have to submit to "objectives, limits, rules on organisation and on good conduct" that depend on the definition of risky and non-risky trading.
Banks will have until July 2014 to earmark activities deemed risky by the law and will have until July 2015 to transfer them into separate entities.
Bankers have said it is likely that some banks will decide to scrap these businesses entirely rather than run them as separate businesses.
Insurance groups with cooperative structures like Groupama will also face stronger oversight, while another section of the draft reform tightens consumer-credit rules for bor rowers in "precarious" financial situations.
While the draft law is not due to be officially unveiled until mid-December, leaks have sparked angry reactions from French banks and more sanguine views from some analysts who say the law will have a marginal impact on bank profits.
Politicians, lobbyists and advocacy groups are also poring over the draft ahead of its publication and an eventual public debate over the law.
"We are pleasantly surprised by the draft proposals on ring-fencing risky activities...However, in our view the consumer-credit controls don't go far enough," said Maxime Chipoy, finance specialist for French consumer advocacy group UFC-Que Choisir. (Reporting by Lionel Laurent; Editing by Christian Plumb)