Plans for the Royal Bank of Scotland (RBS) are to be scrutinised in an “in-depth investigation” by the European Commission.
The bank has set out plans to abandon the requirement placed on it by the Commission in 2009 that it should sell a large portion of its business.
This is to enable competition to be improved.
RBS carved out the division now known as Williams and Glyn, with assets of £20bn.
But it has failed either to find a trade buyer for the division, or to float it on the stock exchange, at least by the deadline of next December.
It has, however, spent more than £1.5bn trying to get it ready for separation, much of that on the complex process of disentangling the IT platform and creating a new one.
The divestment was one of several requirements from the European Commission, in giving permission for the government bail-outs of RBS in 2008 and 2009.
It also had to sell some overseas operations and divisions, slim its balance sheet substantially, and it was barred from further acquisitions. It has met the other requirements.
The plan now is to retain that division with RBS, and instead to help rival banks with a £750m payment into an independent fund.
This is to boost switching of small and medium-scale enterprise (SME) customers away from RBS, while the bigger bank would give branch facilities to those smaller rivals.
RBS funding would also help develop financial technology for the wider banking sector.
The Royal Bank plan, put forward by the Treasury for approval by the European Commission, is seen as so unusual that it is difficult to know how or whether it would work.
The European Commission has begun a month-long in-depth investigation, inviting the UK government as well as others to submit their views.
Commissioner Margrethe Vestager, in charge of competition policy, 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 and Glyn.
“We can only accept this proposal if it has the same positive effect on competition as the divestment of Williams and Glyn would have had. This is important for fair competition.”