When the UK government rescued RBS in 2008 as a result of the banking crisis, it was considered “state aid” under European law, and so the European Commission imposed a number of conditions on the rescue.

One of those was that RBS had to divest part of its SME business, with the aim of increasing competition in the market for banking services to SMEs.

RBS began the process of separating out a number of its SME customers, as well as staff and systems, into what became known as Williams & Glyn (one of RBS’ historic brands). A number of attempts were then made to sell off that part of the bank’s business, or take it public, but for various reasons they did not succeed.

Now, the approach agreed is that the relevant customers are to be incentivised to move their banking to one of the challenger banks, such as Santander, Yorkshire Bank, TSB or Metro Bank. This is known as the “Incentivised Switching Scheme” or “Business Banking Switch”, and RBS has been sending out correspondence to the affected customers giving them further details. It affects over 200,000 RBS customers, and a minimum of 120,000 primary business current accounts must be transferred as part of the process. Of course, it’s highly unusual for a bank to be actively encouraging its customers to move away, and so it’s important that affected businesses properly consider their options.

So, what are the incentives available to switch? Firstly, the challenger banks will be paid directly an amount of money calculated by reference to the turnover of the target business (ranging from £750 for businesses with a turnover of less than £15,000, to £50,000 for businesses with a turnover of more than £7,500,000), together with 2.5% of the amount of any outstanding loan balance transferred. The bank cannot pay this on directly to the transferring customer, but must use it to benefit it in other ways, for example by reducing the fees that would otherwise be payable. In addition, support is available of up to £10,000 to cover legal costs for dealing with putting in place like-for-like security, and up to £1,200 per property valuation.

As well as the financial incentives, there are a number of other factors to consider in deciding whether to switch and, if so, which challenger to switch to. Things such as the challenger’s appetite for lending, the types of debt products or ancillary services it can offer, its knowledge of your business’ sector, what sort of online/digital offering it has, and whether it offers dedicated relationship managers as support, should all be taken into account.

Finally, if a business does make the decision to switch, there would also be a formal credit and legal process (including new facility agreements and security) to go through, as well as dealing with practicalities such as opening new bank accounts and transferring payments.

Any RBS customer that is within scope and is interested in moving must register on the RBS Microsite and, subject to eligibility, offers from the participant challenger banks will become visible on a Microsite from 25 February 2019.

If you bank with RBS and your business is affected we would be delighted to help, and our banking and finance team has many years’ experience advising all types of borrowers on their funding arrangements with their lenders. Please contact the head of our banking and finance team Michael Kidd for further details.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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