The Co-operative Bank has been fined £113,300 by the Financial Services Authority (FSA) for delaying dealing with payment protection insurance (PPI) claims.
The bank put on hold "a significant proportion" of 1,629 complaints in the first half of 2011 to wait for the outcome of the British Bankers' Association's (BBA) High Court challenge of FSA measures designed to ensure all PPI complainants are treated fairly.
Co-op put the complaints on hold despite the FSA making it clear in a letter to the industry in 2011 that claims should be processed normally while the case was ongoing. The BBA's challenge was lost in April of the same year.
Tracey McDermott, the FSA's director of enforcement and financial crime, says: "The FSA made it clear that firms must continue to process complaints where possible during the judicial review and we warned that enforcement action could taken if this was not done.
"While nobody suffered any financial loss, Co-op's actions meant that a significant number of people had the resolution of their valid complains delayed for no good reason."
An FSA review of the complaints Co-op put on hold said 100% of the complaints could have been processed.
Between January 2011 and last October banks have paid out £7.5 billion in compensation to customers mis-sold PPI, with the figure expected to rise.
A spokesperson for Co-op says: "Our strong reputation within the banking sector has been built upon doing the thing by our customers but in this instance our procedures have fallen short of the high standards rightly expected of us."