REUTERS SUMMIT-Banks to escape PPI fines as watchdog focuses on redress

(For other news from Reuters Financial Regulation Summit, clickon http://www.reuters.com/summit/FinancialRegulation14)

* 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 toface hefty fines for mis-selling loan insurance products becausethe financial industry watchdog is more concerned about how theytreat customers as they shell out 20 billion pounds ($34billion) in compensation.

The big banks have paid more than 14 billion pounds ($23.5billion) to customers who were mis-sold payment protectioninsurance (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 forthe mis-selling, which occurred mainly between 2005 and 2009,after the Financial Conduct Authority (FCA) said its toppriority is to ensure that victims are paid compensation fairlyand 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 forwhat happened historically," said Tracey McDermott, the FCA'sdirector of enforcement and financial crime.

"Going back to the historical selling at this point seems toserve little purpose ... we want people's time and attention andfocus on doing the right thing at this point," she told theReuters Financial Regulation Summit on Monday.

Fines imposed on financial firms in Britain last year were20 times the amount levied in 2008, suggesting that PPIoffenders would be hit hard at some point.

However, the FCA's heavy workload - including investigationsinto alleged manipulation of Libor interest rates and foreignexchange markets - means that the assessment of how banks handlePPI complaints and their redress mechanisms is "a better use ofregulator resources" than going back to the original sales,McDermott said.

PPI policies were supposed to protect borrowers againstsickness or redundancy, but were often sold to people who wouldhave been ineligible to make a claim.

Lloyds Banking Group, Britain's biggest retailbank, has set aside almost 10 billion pounds to compensate itscustomers.

However, the biggest fine for PPI mis-selling was a 7million pound punishment handed out to Alliance & Leicester, nowpart 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 regulators2002-14 click on: http://link.reuters.com/ryv93v)

Follow Reuters Summits on Twitter @Reuters_Summits($1 = 0.5948 British Pounds) (Reporting by Steve Slater and Kirstin Ridley; Editing by DavidGoodman)