Lloyds has been fined £117m over its handling of Payment Protection Insurance claims - the largest ever handed out by the FCA in relation to PPI.
"Whilst our intentions were right, we made mistakes in our handling of some PPI complaints," admitted Lloyds chief Antonio Horta-Osorio.
The taxpayer-owned bank was found to have failed in its handling of complaints from customers about the mis-sold insurance between March 2012 and May 2013.
Top bosses at the bank will forfeit a total of £2.65m of bonuses "in recognition of their ultimate responsibility for oversight of the PPI operations". The bank's total bonus pool which applies to staff across the business will also be reduced by around £30m.
"In 2011 Lloyds led the industry in starting to redress customers who had been mis-sold PPI. We did this because we believed it was the right thing to do," the bank boss added, "When we began the remediation programme, it was thought this would cost the entire industry around £4.5 billion. To date the industry has set aside over £26bn for PPI redress with the consequent impact on operational complexity and the significant administrative resources required."
The City regulator last month fined Clyesdale Bank £20.7m for serious failings in the way it handled complaints - the largest ever penalty in relation to PPI at the time.
The FCA found Lloyds unfairly rejected customer claims and did not investigate complaints properly in some cases.
During the 14 month period, the bank handled complaints about more than 2.3m PPI policies and rejecting 37 per cent of them.
“PPI complaint handling is a high priority issue for the FCA. If trust in financial services is going to be restored following the widespread mis-selling of PPI, then customers need to be confident that their complaints will be treated fairly," said acting enforcement and market oversight director Georgina Philippou.
“The size of the fine today reflects the fact that so many complaints were mishandled by Lloyds. Customers who had already been treated unfairly once by being mis-sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds’ conduct was unacceptable.”