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By Matt Scuffham | February 19, 2013 3:35 AM PST

Britain's financial regulator on Tuesday fined Lloyds Banking Group 4.3 million pounds for failing to handle complaints relating to insurance sold on loans and mortgages properly.

The Financial Services Authority (FSA) said failings in the bank's systems and controls resulted in up to 140,000 customers experiencing delays in receiving compensation for being mis-sold payment protection insurance (PPI).

The FSA said that, between May 2011 and March 2012, Lloyds failed to pay compensation to some customers within the required deadline of 28 days following a decision on whether they were entitled to a payment.

Britain's banks have set aside more than 12 billion pounds to compensate customers wrongly sold policies meant to protect borrowers who lost jobs or became ill. Lloyds has made a provision of 5.3 billion pounds, the highest of any bank.

The regulator said more than 140,000 Lloyds customers, nearly a quarter of the total entitled to compensation, did not receive a payment within 28 days. Around 87,000 had not received a payment within 45 days, with 8,800 having to wait over six months. Around 25,000 claims inadvertently "dropped out of the process", the FSA found, and were only identified because customers chased payments.

Lloyds Banking Group said on Tuesday that it had not anticipated the number of complaints it received and made "administrative errors" while attempting to get on top of them.

"We acknowledge that this led to some customers not being compensated on time and we apologise to those customers whose payments were delayed," Lloyds said.

(Reporting by Matt Scuffham; Editing by Rhys Jones and Helen Massy-Beresford)

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