By Iain Withers and Lawrence White
LONDON (Reuters) - Lloyds Banking Group (L:LLOY) has been heavily criticized for mishandling a compensation scheme for victims of one of Britain's biggest banking scandals in a report published on Tuesday.
The fraud at Halifax Bank of Scotland's Reading branch led to six people being jailed in 2017 for a combined 47 years.
The scam involved small business customers being targeted and referred to a consultancy in return for bribes which the judge at the trial said included designer watches, sex with prostitutes and foreign holidays.
The bank's compensation scheme for victims had 'serious shortcomings', retired judge Ross Cranston said in a review.
The bank likely failed to properly compensate some victims for financial losses arising from the fraud's impact on their business, and showed an 'unacceptable denial of responsibility' for victims' suffering, the review found.
The bank, which has paid 102 million pounds ($130.87 million) in compensation to 71 businesses and 191 directors over the fraud, said it would offer all victims the option to have their cases independently reviewed.
Cranston also criticized Lloyds for excluding some victims from the scheme and said the bank should assess further cases.
Watchdog the Financial Conduct Authority said it would consider 'further action' against Lloyds over the failings, adding that they needed to be addressed quickly.
"We are disappointed that, after such a long period of time, the consequences of the HBOS Reading fraud for customers have not yet been properly remediated by LBG," the FCA added.
Nikki Turner, one of the victims of the HBOS fraud and outgoing director of campaign group SME Alliance, welcomed the report but urged Lloyds to act quickly.
"It is nearly three years since the guilty verdicts were handed down, and a decade and a half since many of the frauds took place.
"Victims are suffering real hardship, many lost their businesses, homes and – in some cases – families. They need fair restitution now," Turner said.
Politicians and campaigners have criticized Lloyds for its handling of the fraud at HBOS, a business it bought in a state-engineered takeover in 2009.
Cranston was appointed by Lloyds to assess its compensation scheme for victims, after financial services minister John Glen called for an investigation in December last year.
Lloyds Chief Executive António Horta-Osório apologized to victims and said he was committed to implementing the recommendations of the report.