UPDATE 2-Canada Libor investigators escalate dispute with RBS
* Agency says statement in RBS Q3 results is "false"
* Says RBS has challenged order to turn over documents
* RBS says willing to cooperate via alternative mechanisms
* Dispute spills into public realm as court hears challenge
By Louise Egan
OTTAWA, Nov 14 (Reuters) - The Canadian agency investigating whether banks manipulated a key global interest rates accused Royal Bank of Scotland Group on Wednesday of failing to cooperate with its probe and of making misleading statements about it.
Escalating a dispute over the Canadian Competition Bureau's request for internal documents, the Ottawa-based agency said RBS was not cooperating fully, as the bank claimed, with the probe into possible collusion in setting the yen Libor rate.
"The suggestion that the RBS Group is 'co-operating fully' with the bureau is false," the federal agency said in a statement on its website.
RBS said it has challenged the Canadian investigators' methods for obtaining information due to confidentiality concerns, but is willing to find alternative ways of turning over the documents.
"It is simply not accurate to imply that we do not want to cooperate with the Canadian Competition Bureau," the bank said in a statement.
When asked why the bureau took the unusual step of going public with its spat with the bank, a spokesman said it felt compelled to react after seeing media reports of the RBS statement, included in its quarterly earnings report.
"We take misleading statements regarding our investigations very seriously, so in this case we did not hesitate to release a statement, to take the appropriate action to correct them," said Phil Norris, the spokesman.
More than a dozen banks are being probed in connection with fixing the London Interbank Offered Rate (Libor). U.S. and UK authorities have also been investigating RBS' possible role in any wrongdoing.
The Competition Bureau won a court order in May 2011 requiring RBS to turn over documents that would help in the investigation into whether RBS and other banks tried to influence how the London Interbank Offered Rate (Libor) is set.
RBS won a stay of the order from a Canadian court in November, until a challenge of the law could be heard.
RBC launched that challenge in January. It says the documents from its parent company in Britain would contain information identifying individuals and clients, violating United Kingdom data protection and banking confidentiality laws.
On Wednesday, the bank repeated those arguments and defended its statement on cooperating with the Canadian investigators. It said it had proposed a way around the problem and suggested the Canadians were being inflexible.
"To overcome this issue we have offered a number of alternative mechanisms, however, thus far, the Bureau have refused these offers. We have worked through this problem with other regulators and remain committed to cooperating fully with the CCB," it said.
A bank source familiar with the controversy said the Canadians could make a request for documents directly to the UK government under a mutual legal assistance treaty. This would result in the UK producing the documents without breaching confidentiality laws.
The source said U.S investigators had used that method to get RBS documents with success.
Many expected RBS to be one of the next banks to settle after British rival Barclays was fined $450 million in June.
RBS said earlier this month when it published third quarter results that it expected to start talks on a settlement soon, which would likely result in financial penalties.
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