(For other news from Reuters Financial Regulation Summit, click here)
* Total compensation set to hit 20 bln stg
* Biggest single PPI fine was 7 mln stg in 2008
* Helping victims is best use of resources, says FCA
LONDON, April 28 (Reuters) - British banks are unlikely to face hefty fines for mis-selling loan insurance products because the financial industry watchdog is more concerned about how they treat customers as they shell out 20 billion pounds ($34 billion) in compensation.
The big banks have paid more than 14 billion pounds ($23.5 billion) to customers who were mis-sold payment protection insurance (PPI) and have set aside a further 6 billion pounds, easily making it the country's costliest mis-selling scandal.
Yet the banks look set to escape heavy regulatory fines for the mis-selling, which occurred mainly between 2005 and 2009, after the Financial Conduct Authority (FCA) said its top priority is to ensure that victims are paid compensation fairly and quickly.
"The decision we have made is to focus on the here and now, rather than going back to 2006 and 2007 to penalise people for what happened historically," said Tracey McDermott, the FCA's director of enforcement and financial crime.
"Going back to the historical selling at this point seems to serve little purpose ... we want people's time and attention and focus on doing the right thing at this point," she told the Reuters Financial Regulation Summit on Monday.
Fines imposed on financial firms in Britain last year were 20 times the amount levied in 2008, suggesting that PPI offenders would be hit hard at some point.
However, the FCA's heavy workload - including investigations into alleged manipulation of Libor interest rates and foreign exchange markets - means that the assessment of how banks handle PPI complaints and their redress mechanisms is "a better use of regulator resources" than going back to the original sales, McDermott said.
PPI policies were supposed to protect borrowers against sickness or redundancy, but were often sold to people who would have been ineligible to make a claim.
Lloyds Banking Group, Britain's biggest retail bank, has set aside almost 10 billion pounds to compensate its customers.
However, the biggest fine for PPI mis-selling was a 7 million pound punishment handed out to Alliance & Leicester, now part of Santander's British arm, in October 2008. Several other firms have been fined modest amounts.
(For a graphic on the scale of fines by UK regulators 2002-14 click on: link.reuters.com/ryv93v)