By Steve Slater, Huw Jones, Sinead Cruise and Matt Scuffham

LONDON - Royal Bank of Scotland could face a hefty fine from the same interest rate rigging scandal that has hammered Barclays this week and left its boss Bob Diamond fighting for his job.

Taxpayer-backed RBS is set to be fined about 150 million pounds (s$297 million) for participating in market manipulation offences similar to those engaged in by Barclays, the Times newspaper said.

RBS said it, like many others, is continuing to co-operate with regulators on the ongoing investigation. Any resolution of its case is months away, a person familiar with the matter said.

Britain's banking woes deepened on Friday as the Financial Services Authority said it had settled with four banks - Barclays, RBS, HSBC and Lloyds - after finding evidence they mis-sold products to protect small businesses against a rise in interest rates.

Compensation could run into the hundreds of millions of pounds, lawyers have said, although Lloyds said the cost for it would not be material.

The FSA said from 2001 to date, banks sold around 28,000 interest rate protection products to customers, although it did not did not say how much it would cost the banks.

A string of mis-selling cases has rocked the financial services industry for over two decades and banks are already likely to pay upwards of 9 billion pounds in compensation for mis-selling loan insurance.

The Libor mis-selling scandal is expected to draw in many banks globally, but Diamond has found himself first in the firing line after US and British authorities fined Barclays $450 million on Wednesday for manipulating the London interbank offer rate (Libor).

Prime Minister David Cameron said Diamond - who was running the investment banking arm Barclays Capital when the rigging occurred in 2005-2009 - and other bosses had some "big questions to answer". Britain also called in the fraud squad to investigate possible crimes.

"Politicians have already been baying for blood and calling for the head of Bob Diamond, especially as he was in charge at BarCap at the time," said Stephen Peak, manager of the Henderson UK Alpha and European Absolute Return funds and a shareholder in the bank.