Business Secretary Vince Cable has passed evidence of Royal Bank of Scotland's treatment of small businesses to City watchdogs amid allegations that the bank seized assets from firms to benefit its own property empire.
The taxpayer-backed lender is facing a series of damning accusations over its handling of small businesses in a report due to be published tomorrow by businessman Lawrence Tomlinson, who acts as entrepreneur in residence at the Department for Business, Innovation and Skills.
Mr Cable confirmed he has referred the report to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) , as well as RBS and Sir Andrew Large, who is also due to publish his full RBS-commissioned review into small business lending at the group tomorrow.
The bank, which is 80% owned by the state, faces further allegations of mistreatment by small firms following a two-month investigation by The Sunday Times, which claims to have uncovered evidence of a "hit squad" within RBS that has driven businesses into financial difficulty through punitive fees and charges and then scooped up their property assets at rock-bottom prices.
Evidence gathered by the newspaper was shared with Mr Tomlinson for his report, which has been conducted on an independent basis.
Mr Tomlinson - who owns a string of businesses from care homes to motorsport through his LNT Group - told The Sunday Times: "There is a wealth of evidence which suggests that RBS has forced healthy, vibrant businesses into financial trouble and... seized their assets to benefit its own vast property empire."
Mr Cable 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."
It is understood the allegations focus on the bank's Global Restructuring Group (GRG) lending division, which handles loans classed as being r isky.
But The Sunday Times probe claims that RBS pulled finance for many small businesses that had not missed loan repayments and were trading through the recession.
The GRG unit is understood to have the power to scrap loan deals, impose inflated interest rates and charge hefty penalties.
An RBS spokesman said GRG's role was key to helping the bank face up to its commercial property "mistakes" made in the run up to the financial crisis.
He said: " In the boom years leading up to the financial crisis, the over-heated property development market became a major threat to the UK economy.
"RBS did more than its fair share to fuel this and commercial property lending was one of the key drivers of our near collapse as valuations rapidly plummeted."
He added: "GRG successfully turns around most of the businesses it works with, but in all cases is working with customers at a time of significant stress in their lives. Not all businesses that encounter serious financial trouble can be saved."
The group said it was "already committed" to an inquiry on how it treats small firms, following recommendations by Sir Andrew.
The former deputy governor of the Bank of England raised concerns over ''serious'' allegations of poor treatment by firms in financial distress in an initial copy of his report earlier this month.
He also said RBS had failed to meet even the bank's own lending targets or the expectations of its customers, with more detail due in his full report tomorrow.
Mr Tomlinson suggested individuals should be jailed if the allegations against RBS were proven to be true.
He told Channel 4 News: "If it is proved that this is systemic and institutional fraud - and there is quite a lot of evidence from people within the bank that this is the case - then the relevant action should be taken.
"And we should see, if people have had their livelihoods stolen from them, you should see people going to jail."