Bank of England Governor Mark Carney urged the country's financial regulator to probe the Royal Bank of Scotland over the "deeply troubling" and "extremely serious" claims that the state-backed institution helped push small businesses into default as it cashed in on their struggles.
Speaking at parliament's Treasury Select Committee (TSC), Carney said it was the direct responsibility of the Financial Conduct Authority (FCA) to conduct an investigation into RBS. He added that it will be "remarkable" and "shocking" that the behaviour was not picked up sooner if it occurred on a wide scale.
According to a report by Lawrence Tomlinson, a businessman and government adviser hired by Business Secretary Vince Cable to assess the challenges UK SMEs face, RBS pushed businesses into default in order to move them into its Global Restructuring Group (GRG).
This can create more revenue for the bank through higher fees and margins and can result in the purchase of devalued assets by its property division, West Register.
Since the revelations, Cable has demanded an "urgent response" from the FCA over the latest scandal surrounding RBS, which is 81% owned by taxpayers after a financial crisis bailout.
"Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken," Cable said.
Tomlinson was hired in April this year to help the government assess the scope and scale of issues that small-to-medium enterprises (SME) face.
RBS said in a statement that it "already committed to an inquiry to investigate how customers are treated by RBS when facing financial difficulties and ensure that we provide them with appropriate support".
"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 bank appointed law firm Clifford Chance to conduct its internal review.
Guto Bebb MP, the chairman of the All-Party Parliamentary Group on Interest Rate Hedging Products, called for an independent review into RBS.
"I am appalled by RBS's weak reaction to The Tomlinson Report," said Bebb.
"It was clearly set out in the report that conflicts of interest were a key problem within our current banking sector and yet RBS have inadequately agreed to hold an internal investigation.
"We need an independent enquiry. Large law firms cannot be expected to independently review the banks while heavily dependent on their business. There is a clear conflict of interest."