Royal Bank of Scotland will face a review of its small business lending by a City watchdog-appointed investigator following allegations of "unscrupulous" practices at the state-backed group.
The Financial Conduct Authority (FCA) said it was also asking all major high street banks to look at their treatment of small firms after an explosive report earlier this week by businessman Lawrence Tomlinson.
The FCA said it would hire an independent person to review the accusations made against RBS in the report, with an appointment expected within the next week.
It could launch a full enforcement probe following the results of the review.
The regulator has also written to other major lenders "seeking confirmation that they are satisfied they do not engage in any of the poor practices" alleged in the report by Mr Tomlinson.
Its action also comes after a critical review of small business lending by former bank of England governor Sir Andrew Large, who was appointed by RBS to conduct an independent inquiry.
Mr Tomlinson's report claimed he had uncovered a dossier of evidence alleging that RBS deliberately forced companies into default to seize their properties, while practices at other banks were also criticised.
Clive Adamson, director of supervision at the FCA, said: "These allegations, if proved, raise serious concerns about how banks treat their customers.
"An SME's relationship with its bank is essential for any business to have a chance to succeed, and claims like the ones made threaten to undermine that."
A spokesman for RBS said the group welcomed the FCA inquiry.
But he added: "As of now, no evidence has been produced that backs the claims of systematic fraud made this week.
"The claims have damaged RBS's reputation and threaten to undermine our ability to build trust with customers and increase lending to UK business.
"We need to get to the facts as quickly as possible. That's why we fully support the FCA's work and will carry on with our own investigation."
The FCA-commissioned investigation - which will be paid for by RBS - comes just days after the bank appointed law firm Clifford Chance to conduct an independent review into the Tomlinson allegations, as well as broader issues such as the banking culture. It will report back by January 31.
In its letter to lenders, the FCA said that while commercial lending does not come under its rules it expects firms to "act with integrity across all of their activities".
It added: "The allegations in these reports gave the FCA concerns as to whether firms are treating their customers appropriately, in particular those in financial difficulties.
"This may indicate wider concerns in relation to governance and culture within firms."
It plans to discuss the issue further in its regular meetings with the banks.
Mr Tomlinson's report found a ''disproportionately high'' number of complaints against RBS, although fellow part-nationalised player Lloyds Banking Group is also criticised for concentrating on short-term gain at the expense of its business customers.
His claims focused on the Global Restructuring Group (GRG) within RBS, which handles loans classed as risky and is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties.
But the report alleged that firms not necessarily in immediate financial distress are ''engineered'' into GRG, sometimes through small technical breaches of loan terms, such as late filing of minor financial information.
They are then 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 for the benefit of its West Register property arm, according to Mr Tomlinson, who is one of Business Secretary Vince Cable's key advisers.
Sir Andrew's review - published on the same day - also made reference to accusations about the bank ''hastening the failure of businesses'' in some cases.
It also found that up to 10% of small and medium enterprises (SMEs) rejected at a pre-application stage may in fact be suitable for financing.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article