Britain’s financial regulator said banks and other financial services companies had agreed to reopen two-and-a-half million loan insurance mis-selling complaints from 2012 and 2013 to make sure fair compensation was paid.

The Financial Conduct Authority said yesterday the industry had so far paid out £16 billion to compensate customers mis-sold payment protection insurance (PPI), from £22 billion set aside to deal with Britain’s most expensive consumer scandal.

The policies were meant to protect customers who fell ill or lost their jobs but were often sold to those who did not need them or would have been ineligible to claim.

The FCA said it was not satisfied that all PPI complaints received by banks in 2012 and 2013 had been treated fairly after the number of cases being won by customers fell.

It said banks had subsequently agreed to review cases which may have been unfairly rejected or where too little compensation may have been paid.

“Making sure anybody previously mis-sold PPI is treated fairly now, and paid redress where it’s due, is an important step in rebuilding trust in financial institutions,” said the FCA’s Chief Executive Martin Wheatley. “In around two-and-a-half million complaints this was not necessarily the case so, at our request, firms will be looking at these complaints again.”

Lloyds, Barclays and Royal Bank of Scotland increased the amounts they had set aside alongside their first-half results.