Royal Bank of Scotland is to set aside £400m to compensate businesses whose failures generated income for the bank, but the figure has been criticised by a firm suing RBS on behalf of hundreds of former clients.

It was reported this morning that the bank would refund complex fees paid by about 4,000 small business customers between 2008 and 2013.

Chief executive Ross McEwan said RBS has acknowledged for some time that mistakes were made by the defunct Global Restructuring Group (GRG).

Kris Kerstetter, partner at City firm Humphries Kerstetter, which is representing RGL Management, an umbrella company for affected businesses, told the Gazette: ‘The £400m sum is not likely to be very sufficient for the businesses affected by this. Many business worth millions went down the drain through GRG and many people lost their livelihoods.

‘It would appear the £400m is related to fees but the problem went far beyond that.’

Janine Alexander, partner in law firm Collyer Bristow, echoed Kerstetter’s view and said the compensation scheme does not go ‘far enough’.

She said: ‘SMEs will need to continue to press for compensation - unfair fees are only the tip of the iceberg - and they should be vigilant not to let limitation periods for court proceedings expire in reliance on the compensation scheme as the scope of the scheme and its ability to provide fair redress will not be clear for some time’.

News of RBS’s compensation plan prompted the Financial Conduct Authority to publish an update on its much-delayed report into the GRG’s alleged wrongdoing.

Allegations surrounding the GRG began in 2013 when Lawrence Tomlinson, who was entrepreneur in residence at the former department for Business, Innovation & Skills, said the bank had deliberately put viable businesses on a path to destruction while aiming to pick up their assets cheaply.

The following year, the FCA commissioned a review of the group’s activities.

Today’s update stops short of publishing the full report and instead provides an update of its findings.

According to the FCA, RBS was guilty of ‘systematic mistreatment’ of distressed small businesses. However the report clears the bank of the most serious allegation, that it forced businesses into default for its own benefit.

The FCA’s findings follow a 2014 assessment by magic circle firm Clifford Chance. It was commissioned by RBS to produce an independent report on Tomlinson's allegations but said there was no evidence to support most of them.

Kirstetter told the Gazette that the FCA report ‘appeared to be going toward’ a whitewash.

He said the FCA’s report appeared to include some indication that there were serious problems. ‘It is more critical of the Clifford Chance report but that is perhaps not surprising,’ he added.

Clifford Chance declined to comment.

The FCA told MPs in the Treasury select committee this morning that it would be ordering an inquiry into how information regarding payouts was leaked.