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UPDATE 3-Britain's Lloyds fined $58 mln for HBOS fraud failings

(Adds comment from victims group)

* Fine for failures at HBOS arm to disclose fraud suspicions

* Lloyds acquired HBOS at height of financial crisis

* Some investors have criticised Lloyds' handling of case

By Huw Jones and Iain Withers

LONDON, June 21 (Reuters) - Britain's financial watchdog has fined Lloyds Banking Group 45.5 million pounds ($58 million) for failures to disclose suspicions of fraud at an HBOS branch in Reading, southern England.

The fine is a further embarrassment for Lloyds as banks continue to pay for misbehaviour during the financial crisis a decade ago when Britain had to bail out several lenders.

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Halifax Bank of Scotland (HBOS) was involved in one of Britain's biggest banking frauds which led to six people, including two former HBOS bankers, being jailed in 2017 for a combined 47 years.

HBOS was rescued by Lloyds in a state-engineered takeover in 2009. The Financial Conduct Authority (FCA) says HBOS identified suspicious conduct in Reading in early 2007 but did not tell the regulator until the year Lloyds acquired the bank.

The fine would have been 65 million pounds but was discounted by 30% after Lloyds agreed to resolve the matter, angering a group representing victims of the fraud.

Nikki Turner, one of the victims of the HBOS fraud who runs campaign group SME Alliance, said the fine had come too late.

"For victims who lost their businesses, livelihoods and, in some cases families, because of the craven, unrestricted behaviour of HBOS bankers, action coming over a decade after the event is the ultimate insult," Turner said.

The fine is the largest imposed by the FCA on a firm for not being open and co-operative with the watchdog, but it is dwarfed by the 6 billion pound pre-tax profit made by Lloyds last year.

Lloyds shares were down 0.6% at 13.50 GMT.

HBOS FAILURES

The FCA said HBOS failed to be open and cooperative and failed to disclose information appropriately to the then regulator, the Financial Services Authority (FSA).

The bank's failures caused delays to investigations by both the FCA and police, said Mark Steward, the FCA's executive director of enforcement and market oversight.

"There is no evidence anyone properly addressed their mind to this matter or its consequences," Steward said.

The watchdog also banned Lynden Scourfield, Mark Dobson, and husband and wife David Mills and Alison Mills, who were all convicted in 2017 in a fraud trial related to the Reading case, from working in financial services.

Lloyds Banking Group said in a statement it welcomed the FCA's "comprehensive investigation", accepted its findings and apologised to customers affected.

The then FSA appointed investigators to examine the misconduct, but the probe was put on hold from 2013 to 2017 to allow for the criminal prosecution to be completed.

Lloyds has not yet drawn a line under the fraud at the HBOS Reading branch, with its handling of the affair questioned at the bank's annual meeting last month.

British television personality Noel Edmonds has alleged his former entertainment business collapsed as a result of the fraud, while Lloyds has said 71 business customers have been offered compensation, of whom 98% have accepted its offers.

A retired High Court judge is reviewing whether this compensation scheme was conducted fairly. ($1 = 0.7887 pounds) (Reporting by Huw Jones and Iain Withers in London and Noor Zainab Hussain in Bengaluru; Editing by Rachel Armstrong, Mark Potter and Alexander Smith)