Thousands of investors have launched a potential £3.5 billion compensation claim against Royal Bank of Scotland.

The group of more than 12,000 private shareholders and up to 100 institutions claim the bank deliberately misled them into believing it was in better financial health just before it collapsed in 2008.

They are also suing former senior RBS executives.

The institutions involved in the class action are understood to include charities as well as churches, pension funds, hedge funds, fund managers and private client brokers.

RBS is now 82% taxpayer-owned after the British government bailed it out in 2008.