The European Commission, the executive arm of the European Union, has approved the state aid and restructuring plan for Royal Bank of Scotland, which was hit brutally by the financial crisis and is now 70 per cent nationalised.

RBS is the parent of UK private bank Coutts & Co, and its sister international wealth management firm, RBS Coutts.

The Commission said that it is satisfied that the measures are in line with its guidelines on impaired asset relief and on restructuring aid for banks. EU competition law allows state aid to remedy a serious disturbance in a member state's economy.

The decision forces a number of divestments onto RBS. In a statement to the press, the Commission said that these divestments include RBS' insurance, transaction management and commodity trading operations.

The Commission believes that selling off these business is important to generate resources which will limit the need for further aid to finance the return to viability.

"This case has been one of the most complex the Commission has had to deal with during the financial crisis,” said competition commissioner Neelie Kroes.

“Royal Bank of Scotland will take a number of significant steps to return to long term viability. RBS will itself pay a sufficient share of the restructuring costs and distortions of competition will be limited by substantial divestments,” the Commissioner added.

The Commission believes that forcing a firm to sell of some of its assets will limit the danger of firms taking excessive risks with no fear of paying the consequences if things go sour.

“I wish a better and more sustainable future to this bank. But be aware that in case RBS does not deliver on its balance sheet reduction targets by 2013, the Commission will be able to intervene again and more divestments will be required,” Ms Kroes said.

Speaking to WealthBriefing, RBS described the Commission’s decision as “a further key milestone in the restructuring” of the bank, but did not comment further on the consequences of this decision.

The Commission said that RBS's expansion strategy, including the acquisition of the wholesale operations of ABN Amro in 2007, and lending financed mainly through wholesale funding, constituted the bank’s weakness.

Last year the bank received a taxpayer-funded recapitalisation of £20 billion ($32 billion), giving the UK state a 70 per cent stake in RBS. At the time this was conditionally approved by the Commission, which demanded that a restructuring plan would be drawn up. This plan was submitted to the Commission in June this year, containing additional state measures.