LONDON (Reuters) - The European Commission has accepted the British government's plans to free Royal Bank of Scotland (L:RBS) from an obligation to sell more than 300 branches bringing to an end the bank's seven-year struggle to meet conditions for its bailout.
Britain's finance ministry said the European Commission had in principle accepted alternative proposals that mean the bank will fund about 835 million pounds ($1.09 billion) of measures to help so-called challenger banks and boost competition.
"It will see RBS fund and deliver a package of measures to improve the UK business banking market and is designed to boost competition, helping small and medium-sized enterprises benefit from greater choice and offers on banking services," the finance ministry said in a statement.
RBS had tried and failed to sell a business banking division, Williams & Glyn, to meet conditions for its 45 billion pound bailout at the height of the 2008-2009 global financial crisis.
The deal means an end to RBS's state aid commitments which is considered a major milestone on the path towards the bank's recovery and the restoration of dividends.
The last major regulatory challenge facing the bank is settling an expected multi-billion dollar fine from the United States Department of Justice for claims that RBS mis-sold mortgage bonds in the run-up to the financial crisis.
To meet its new state-aid requirements RBS will spend 425 million pounds on a capability and innovation fund that will grant funding to competitors and 350 million pounds to encourage customers to switch their accounts from RBS.
The finance ministry said when running costs are included the figure will rise by about a further 60 million pounds.
RBS said separately it will have to take an additional 50 million charge when it reports half-year results next week to top up a previous provision for funding the proposed program.
European regulators originally ordered a sale of Williams & Glyn by 2013 to prevent RBS, Britain's largest small-business lender, from having an unfair advantage and posing a systemic threat to its economy.
RBS spent more than 1.5 billion pounds trying to spin-off the branches - which were to be branded Williams & Glyn - but struggled to separate them from its IT system.
($1 = 0.7665 pounds)