(Adds that RBS declined to comment, more background on recently updated policy)
WASHINGTON, April 28 (Reuters) - A top U.S. regulator on Monday sharply criticized her agency for failing to revoke certain regulatory privileges afforded to the Royal Bank of Scotland Group Plc following a criminal plea deal by one of its units over manipulation of the Libor benchmark interest rate.
In a statement, U.S. Securities and Exchange Commission member Kara Stein lambasted the regulator for routinely permitting publicly traded companies that break the law to keep taking advantage of regulatory benefits that help them more easily raise capital.
"We have a rule that confers a special benefit to issuers that have a good track record. And we have a rule that calls for automatically rescinding that benefit when the issuer misbehaves," wrote Stein, who is a Democrat.
"Here, the commission waived that common sense rule despite egregious criminal misconduct."
Stein's concerns center on the SEC's decision late on Friday to let RBS keep its special status as a "well-known seasoned issuer," or "WKSI," a tag generally afforded only to companies that raise large amounts of capital and are widely followed in the market.
Companies that have a WKSI status enjoy numerous benefits, including qualifying for automatic shelf registrations, which allow companies to raise money immediately from securities offerings without having to wait for the SEC to review offering documents.
But companies can potentially lose their "WKSI" status if they are convicted of a felony or if they violate the civil anti-fraud laws.
Last year, a Japanese investment banking unit of RBS agreed to pay a $50 million criminal fine and plead guilty to wire fraud in connection with the manipulation of the Libor rate.
The fine was part of a larger $612 million settlement that resolved criminal and civil charges by authorities in the U.S, the United Kingdom and Japan.
The European Commission later also separately fined the bank 391 million Euros ($541 million) for related allegations of Libor manipulation.
In her statement, Stein said the criminal case against the RBS subsidiary should have precluded the bank from being eligible to operate as a WKSI. Nevertheless, she said, the waiver was still approved in a narrow 3-2 vote.
When reached by phone, SEC Democratic Commissioner Luis Aguilar confirmed that he joined Stein in dissenting on the deal.
A spokesperson for RBS declined to comment on Stein's comments.
Although criminal convictions and other types of violations can automatically cause companies to lose their WKSI status, the SEC allows them to apply for waivers.
Throughout the past several years, many large financial firms have managed to obtain the waivers.
Among them are Nomura Co, Fifth Third Bancorp , UBS AG, JP Morgan Chase & Co, Wells Fargo & Co, Morgan Stanley and Credit Suisse AG , according to a list on the SEC's website.
The Royal Bank of Scotland was also granted a waiver in November, after it paid more than $150 million to settle civil charges with the SEC over allegations that a U.S.-based unit misled investors in a financial crisis-era subprime mortgage crisis.
Stein said that the SEC has granted at least 30 WKSI waivers since 2010, and that one firm in the last 10 years has received over 22 different waivers.
"I fear that the Commission's action to waive our own automatic disqualification provisions arising from RBS's criminal misconduct may have enshrined a new policy - that some firms are just too big to bar," Stein wrote.
The SEC's policy that governs how it will consider WKSI waiver requests by companies was quietly updated on April 24, a day before the commission issued the new waiver for RBS, the agency's website shows.
The policy now contains some tougher language concerning granting waivers in cases where there is a criminal conviction or intentional fraud.
WKSI waivers have been controversial at the SEC before.
A September 2010 report by the SEC's inspector general into an SEC settlement with Bank of America Corp over its acquisition of Merrill Lynch & Co showed disagreement among staff inside the SEC over whether to grant a WKSI waiver.
(Reporting by Sarah N. Lynch; Editing by Bernard Orr)