The European Commission will launch an in-depth probe into government proposals to spare Royal Bank of Scotland (RBS) from being forced to sell off Williams & Glyn.
RBS, which is 72% owned by the taxpayer, scrapped the unit sale last month after a series of failed attempts to find a buyer unit.
But the sale was an EC condition of its state £45.5bn (€53.1bn, $56.6bn) bailout during the 2008 financial crisis.
RBS, together with British regulators, have drawn up an alternative plan to launch a £750m fund for challenger banks and fintech investment to boost competition among UK financial services firms.
The EC said it will gather views from third parties before judging whether this "set of novel behavioural measures" satisfy its original ruling.
Competition commissioner Margrethe Vestager said: "RBS is the leading bank in the UK small- and medium-sized enterprise banking market and received significant state support during the financial crisis.
"We can only accept this proposal if it has the same positive effect on competition as the divestment of Williams & Glyn would have had. This is important for fair competition."
The new plan comes after RBS spent nearly eight years attempting to divest about 300 branches to numerous potential buyers, including a failed sale of branches to Santander in 2012.
RBS also came across severe difficulties in a bid to create a separate technology platform for the new unit. This scrapped IT project alone cost some £2bn.
A Treasury spokesman said: "This is an important step forward in the process of resolving one of RBS' most significant legacy issues.
"We look forward to working with relevant parties to ensure the proposed plan delivers increased competition in the UK's business banking market as effectively as possible."
Chancellor Philip Hammond has already said the government does not expect to offload its stake in RBS until after 2020.