The Financial Conduct Authority (FCA) is under fire for allowing Lloyds Banking Group (Lloyds) to create a “flawed” compensation scheme for victims of fraud.

The SME Alliance represents small firms negatively impacted by the fraud, and has filed an official complaint with the regulator. The alliance has accused Lloyds of covering up its awareness of criminality, while also excluding some victims from compensation.

However, the BBC reported that Lloyds stated it believes its voluntary scheme is fair, and is also reviewing whether the fraud was properly disclosed with the help of a High Court Judge.

The compensation scheme was set up following the January 2017 convictions for fraud, corruption and money laundering of six people, including two former bankers employed by HBOS, a Lloyds subsidiary.

The £245m scandal took aim at small business customers, who were usually forced out of their firms and ruined.

Despite the accusations from the SME Alliance, Lloyds’ chief executive Antonio Horta-Osorio said he was “absolutely determined” to ensure that victims were compensated “fairly” and “swiftly”.

Lloyds set up a review with the agreement of FCA chief executive Andrew Bailey. However, the regulator left the responsibility of judging which victims were eligible and how much compensation to pay with the bank.

Lloyds reported that it made an offer to all 71 victims included in its review, though the SME Alliance said some victims had been excluded from the review entirely, with no realistic means of challenging the decision.

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