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The state-backed Royal Bank of Scotland has hired a law firm to investigate claims of "unscrupulous" treatment of small businesses - described as "shocking" by Chancellor George Osborne.
A new report alleges that the lender drove firms to collapse to buy back their assets at rock-bottom prices.
Businessman Lawrence Tomlinson said he had uncovered a dossier of evidence that RBS had deliberately forced companies into default to seize their properties.
RBS chief executive Ross McEwan wrote to Sir Andrew Large, Deputy Governor of the Bank of England, to confirm that Clifford Chance will investigate small business lending.
State-backed Royal Bank of Scotland has hired a law firm to investigate claims of "unscrupulous" treatment of small businesses after a report alleged that the lender drove firms to collapse to buy back their assets at rock-bottom prices.
Chancellor George Osborne said the reports about RBS were "shocking". He told ITV's Daybreak:
A report into RBS' treatment of small businesses by Vince Cable's adviser Lawrence Tomlinson gives examples of some of the costs businesses say they incurred through the lender's restructuring group.
- One business demonstrated that their time in GRG cost them £256,000 in fees alone
- RBS made a firm pay an immediate sum of £40,000 to carry on with current lending
- Examples of fee levels included a range from £25,000 through to hundreds of thousands of pounds.
A Government adviser's damning report on RBS' treatment of small firms accuses banks of "heavy-handed profiteering and abhorrent behaviour" towards businesses.
The 20-page Tomlinson Report, which Business Secretary Vince Cable has passed to the Financial Conduct Authority, details what is terms a conflict of interest in the lender's relationship with small firms and its property arm West Registery.
Lawrence Tomlinson, who compiled the dossier, accuses RBS of "engineering" the collapse of some small businesses so it could buy their assets back on the cheap.
Explosive accusations levelled at Royal Bank of Scotland accuse the taxpayer-backed lender of "engineering" the collapse of some small firms in order to buy back the businesses' properties and assets at rock-bottom prices to boost its property arm.
An independent report compiled by businessman Lawrence Tomlinson, who is entrepreneur in residence at the Department for Business, Innovation and Skills, claims to have evidence of RBS' "unscrupulous" treatment of small businesses.
He says that there is a conflict of interest between RBS' Global Restructuring Group (GRG) division, which is designed to help small firms "get back on their feet" and its property portfolio West Register.
He says some firms not necessarily in immediate financial distress have been hit with exorbitant rates and fees, which in some cases cause them to collapse, allowing RBS to buy their property and assets on the cheap.
Lawrence Tomlinson, who acts as entrepreneur in residence for the Government, has told ITV News that there have been "huge conflicts of interest" with the Royal Bank of Scotland's property portfolio and attempting to help small businesses "get back on their feet".
A Royal Bank of Scotland unit that is reported to have imposed harsh conditions on loans, was key to helping the bank face up to its commercial property "mistakes" made in the run up to the financial crisis, said an RBS spokesman.
It is understood the allegations focus on the bank's Global Restructuring Group (GRG) lending division, which handles loans classed as being risky.
The group said it was "already committed" to an inquiry on how it treats small firms, following recommendations in a report due to be published tomorrow.
Serious allegations have been made against the Royal Bank of Scotland, Business Secretary Vince Cable said today, after it was claimed that the bank seized assets from firms to benefit its own property empire.
Mr Cable, who has passed the evidence to City watchdogs, said: "Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken.
"I am however confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium sized businesses."