British peer appointed to dole out $1 billion in RBS grants

(Corrects title of Cromwell at APPG in paragraph 7)

LONDON, May 2 (Reuters) - The leadership team for a body set up to hand out 775 million pounds ($1.1 billion) in grants to Britain's smaller banks was appointed on Wednesday, clearing the way for applications to open in the coming months.

Banking Competition Remedies (BCR) said Godfrey Cromwell, a member of the House of Lords, had been appointed its chairman. The search for appointees had taken months, with some small lenders complaining about the pace of progress.

Cromwell, who has industry experience, will be charged with overseeing the dispersal of the funds, intended to spur competition in a business banking market dominated by four large players.

Already small, so-called challenger banks are lining up to bid for their share, with some entering the market for the first time altogether, eager for help to compete with the likes of HSBC, Barclays (LSE: BARC.L - news) , Lloyds Banking Group and the Royal Bank of Scotland (LSE: RBS.L - news) (RBS).

The government and the European Commission ordered RBS to provide the money, comprised of two separate funds respectively intended to help smaller rivals build their offerings and encourage customers to switch providers.

It is meant to compensate for the taxpayer-owned bank's 45.5 billion pound bailout during the financial crisis, seen as an unfair boost to already one of the biggest banks.

"This project combines resolving RBS's state aid obligations with seeking to support greater competition in the SME (small- to medium-sized enterprise) banking market," said Cromwell, who previously headed the All Party Parliamentary Group on Fair Business Banking and remains its vice chair, in a statement.

"I am looking forward to working on this with a range of stakeholders once BCR becomes operational."

Brendan Peilow, a former Treasury official, crown representative for banking and payments and senior banker at Lloyds, has also been appointed executive director.

BCR said the project would launch some time in the summer of 2018, with one further executive director still to be appointed.

RBS first proposed the package in 2017, after its seven-year struggle to spin off its Williams & Glyn brand - the initial order from Brussels following the bank's state-backed rescue - failed.

Eligibility for the money has also been a point of contention, with some industry players complaining relatively large banks are able to bid for certain pools of funding.

Santander UK (LSE: 44RS.L - news) , owned by Spain's Banco Santander (Amsterdam: 817651.AS - news) , and listed banks Virgin Money, Clydesdale and Yorkshire Bank (CYBG (Frankfurt: 42YA.F - news) ) and Metro Bank (Frankfurt: 6MB.F - news) , are all expected to apply, as well as several smaller financial technology firms.

($1 = 0.7329 pounds) (Reporting by Emma Rumney; Editing by MarkPotter)