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Brussels opened an in-depth probe on Tuesday into the UK Treasury’s proposal for RBS to replace the 2009 restructuring plan requirement to sell Williams & Glyn with a scheme to set up a £750m fund for challenger banks and fin tech investment.

The EU’s antitrust watchdog will collect comments from interested third parties over the next month to determine if the UK’s new proposal will effectively “remedy the distortion in the UK’s SME [small and medium sized enterprise] banking market resulting from the state aid to RBS”, wrote the commission.

The new plan would replace the final requirement of its EU-approved bailout plan – for RBS to sell Williams & Glyn by the end of the year, after a series of unsuccessful attempts to divest the group.

Margrethe Vestager, EU competition commissioner said:

RBS is the leading bank in the UK SME banking market and received significant state support during the financial crisis. The Commission is now seeking the views of all interested parties on an alternative package proposed by the UK to replace RBS’s commitment to divest Williams & Glyn. We can only accept this proposal, if it has the same positive effect on competition as the divestment of Williams & Glyn would have had. This is important for fair competition.

The UK Treasury proposed the new measures in February 2017.

The new plan comes after RBS spent nearly eight years attempting to divest about 300 branches through numerous methods, including a failed sale of branches to Santander in 2012.

Last year, the bank, which is 72 per cent backed by UK government, announced it had to scrap its plans to list Williams & Glyn as a standalone bank due to complications in creating a separate technology platform and persistently low interest rates impacting its economic viability in the long-term. The scrapped IT project cost some £2bn.

The new plan involves measures to boost competition in banking for UK small businesses, with an expected cost to RBS of at least £750m.

It includes a fund for so-called challenger banks to expand their business banking operations, funding for fintech, access to RBS’s branch network and “dowries” to tempt business customers to move to a rival bank.

The commission will consider the responses in early May and make a final decision on whether to accept the alternative plan.

A spokesperson for the Treasury said: “This is an important step forward in the process of resolving one of RBS’ most significant legacy issues.”

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