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Lloyds accused of excluding some HBOS fraud victims from compensation scheme

SME Alliance, a group representing small U.K. businesses, has filed a complaint with the Financial Conduct Authority accusing Lloyds Banking Group PLC of excluding some victims of the £245 million fraud at unit HBOS PLC from receiving compensation, The Independent reported.

The group claimed that Lloyds hid its knowledge of criminality at HBOS' Reading branch, which led to the demise of many small companies.

The bank set up the compensation scheme in January 2017 after six individuals, including two former HBOS bank managers, were convicted of bribery, fraud and money laundering. Lloyds said the compensation scheme is in compliance with the law and that it has reached out to all 71 companies it believes were affected by the fraud scandal.

SME Alliance argued that Lloyds is unfairly limiting its liability by saying it only became aware of the fraud in 2017 after the conviction, the report noted.

A leaked 2013 report by Sally Masterton, who worked in the bank's high-risk division, alleged that HBOS bosses were aware as early as 2004 that many business clients were ensnared in fraudulent lending activities and had conspired to conceal it.

The report also claimed that Lloyds found evidence of "serious financial irregularities" at HBOS at the time of its takeover in 2009 but failed to disclose it to its shareholders.