* Large report said RBS should look into customer concerns
* Clifford Chance will report back next year
* RBS accused of pushing firms into turnaround arm
* Business minister refers findings to financial regulator
* Andrew Large says regulators will act if accusations true
By Matt Scuffham
LONDON, Nov 25 (Reuters) - Royal Bank of Scotland has appointed law firm Clifford Chance to conduct an inquiryinto the treatment received by small business customers infinancial distress, responding to suggestions it closed downviable businesses too quickly.
The move comes after an independent report by former Bank ofEngland deputy governor Andrew Large, which was commissioned byRBS, recommended the bank look into concerns over its treatmentof struggling small businesses.
RBS has also been accused by government adviser LawrenceTomlinson of pushing struggling small firms into its"turnaround" unit, so it can charge higher fees (on the basisthey have defaulted) and take control of their assets.
"To ensure our customers can have full confidence in ourcommitment to them, I have asked Clifford Chance to conduct aninquiry into this matter, reporting back to me in the new year,"RBS Chief Executive Ross McEwan said in a letter to Large onMonday.
Large told Reuters that Britain's financial regulator wasalmost certain to take action in relation to the accusations ifthey are found to be true, adding the bank had taken thefindings of his report "very seriously".
"I merely looked at the assertions themselves which wereclearly very serious. If they are found to be true it's almostcertain the regulator will take quite an interest in it," hesaid.
Business Secretary Vince Cable demanded an urgent responsefrom Britain's financial regulators and from RBS, 82 percentowned by taxpayers following a 45 billion pounds ($73 billion)government rescue during the 2008 financial crisis.
Asked on BBC radio if a criminal investigation should belaunched he said: "That's for the regulators and the police toestablish, whether there is a case. The authorities need toestablish whether there is something worse than unethicalbehaviour actually going on here".
The regulator has so far declined to comment.
Tomlinson, a businessman hired as an adviser by Cable'sdepartment in April, said RBS had engineered businesses intodefault in order to move them into its so-called GlobalRestructuring Group (GRG).
Tomlinson said that manoeuvre enabled the bank to generaterevenue through higher fees and the purchase of devalued assetsby its property division, West Register.
Britain's Federation of Small Businesses said: "Theregulators need to investigate the findings of both theTomlinson and Sir Andrew Large reports and swiftly address anyissues raised to restore trust in the banks."
SIGNIFICANT STRESS
Yet the scrutiny of GRG could expose a contradiction in whatRBS had been asked to do following its bailout - stabilise itsfinances at the same time as boosting support for small firms.
RBS said GRG had successfully turned around most of thebusinesses it worked with.
"In all cases RBS is working with customers at a time ofsignificant stress in their lives. Not all businesses thatencounter serious financial trouble can be saved," it said.
GRG is run by Derek Sach, a former executive of Britishprivate equity firm 3i Group. It is part of the bank'snon-core division, run by Rory Cullinan, front runner to becomehead of RBS's internal "bad bank", which is being created afterthe government decided against breaking the bank up.
Cullinan has overseen a reduction in the group's non-coreloans from a peak of 258 billion pounds to around 40 billion.
The latest RBS allegations come as banks in Britain andbeyond continue to be the focus of public disquiet.
Tapping in to popular mistrust of the financial sector, thegovernment has ordered Britain's financial watchdog to probeCo-op Bank after the arrest of its former chairman as part of aninvestigation into the supply of illegal drugs.
Tomlinson was hired by the business department in April asan "entrepreneur-in-residence" to help address the needs ofsmall and medium-sized businesses". He runs LNT Group, based inthe north of England, which has annual revenue of 100 millionpounds and interests from construction to care homes.
3i Group (III)