RBS to offer £775m to encourage SMEs to switch to challenger banks

Royal Bank of Scotland will be required to set up a £425m innovation fund and a £350m scheme to encourage SMEs to switch their accounts, both administered independently with grants paid to challenger banks and fintech companies to boost competition in the sector.

The Treasury and European Commission agreed on the new scheme that was first proposed in February as an alternative to RBS selling off its Williams & Glyn subsidiary.

Stephen Barclay, economic secretary to the Treasury, said on Wednesday: "The announcement today will help boost competition in the business banking market and marks another significant milestone in resolving a major legacy issue at RBS.

"It builds on the recent settlement with the Federal Housing Finance Agency and together they show the progress being made to resolve RBS’s outstanding issues."

The £425m 'capability and innovation fund' will grant funding to a range of competitors in the UK banking and financial technology sectors, with awards ranging from £5m to £120m.

The £350m switching scheme will see will provide £275m of 'dowries' paid to eligible challenger banks to help them incentivise SME customers of Williams & Glyn to switch their accounts and loans from RBS, with an additional £75m to be made available by RBS to cover customers’ costs of switching.

RBS has already made a £750m provision in its 2016 annual results in relation to the previously proposed package of measures.

An extra £50m charge in relation to the revised package and its implementation costs will be recorded in the interim results that are due on 4 August, taking the total provision to £800m.