British regulators on Friday said they had fined Lloyds Banking Group £117 million ($179 million, 160 million euros) for unfair treatment of customer complaints after they were mis-sold an insurance product.
The Financial Conduct Authority (FCA) said it had issued its largest ever retail banking fine to LBG "for failing to treat their customers fairly when handling Payment Protection Insurance complaints between March 2012 and May 2013", according to a statement.
It comes after Lloyds and other British banks had already been ordered to compensate customers for mis-selling PPI insurance products -- a move that has cost the lenders an estimated £26 billion to date.
Lloyds' bill is the highest at about £12 billion, while the total amount set aside by lenders for PPI compensation is far higher than the fines handed to banks around the world for the rigging of foreign exchange and Libor interest rate markets.
"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 Georgina Philippou, FCA acting director of enforcement and market oversight.
Lloyds, which remains 19-percent owned by the British government following a bailout in the wake of the 2008 financial crisis, apologised to customers affected and said £2.65 million worth of bonuses was being withheld from executives under the settlement agreed with the FCA.
The group's total bonus pool for 2015 will meanwhile be cut by about £30 million as a result of the fine.
"Whilst our intentions were right, we made mistakes in our handling of some PPI complaints," LBG chief executive Antonio Horta-Osorio said in a statement issued by the bank.
"I am very sorry for this. We have been working hard with the FCA to ensure all customers receive appropriate redress."
In 2011, British banks lost a high court appeal against tighter regulation of PPI, which provides insurance for consumers should they fail to meet repayments on a credit product such as consumer loans, mortgages or payment cards.
PPI became controversial after it was revealed that many customers had been sold it without understanding that the cost was being added to their loan repayments.
British authorities subsequently banned simultaneous sales of PPI and credit products.