Controversy is brewing over reports that the US government has prevented a UK-based bank from managing pension and other funds in the US.

The US government has banned Royal Bank of Scotland, parent of Coutts, from managing 401(k) plans and other retirement funds, a decision that will have minimal impact on the bank's business but fires a warning at other firms with compliance lapses and criminal records, according to Bloomberg.

UK-listed RBS, which is majority-owned by the UK government, had to seek special permission from the Labor Department to continue managing certain classes of US retirement and pension money after the parent company pleaded guilty to foreign-exchange collusion and a unit admitted to interest-rate manipulation. The Labor Department rejected the bank’s waiver request in an Oct 6 letter obtained by the news service, standing by a preliminary rejection it issued last year.

RBS has already pulled out of its US pension businesses as part of a restructuring. The report said that the lack of investors affected by the decision was one of the reasons the department cited in rejecting the request.

Family Wealth Report understands that RBS no longer provide asset management services to retirement plans in the US having fulling divested Citizens Bank.  The exemption request was largely designed to provide optionality for the future, and the failure to obtain the exemption will not materially impact RBS.

The report added that the move by the Labor Department is unusual, because the government has not as yet rejected large banks’ requests to continue certain lines of business after guilty pleas.

(Editor's comment: Assuming all aspects of this story are accurate, it will be interesting to note if the Labor Department takes a similarly tough line with domestic US banks that carry out such 401(k) business, or seek to do so, and where such domestic banks have broken laws, as they indeed have. It will only spread cynicism if it turns out that the government has chosen to single out foreign banks for such treatment.)