The regulator found that the bank had two unaligned systems, meaning it didn't know what deals some mortgage customers were on.
Bank of Scotland has been fined £4.2 million by the Financial Services Authority (FSA) for keeping inaccurate mortgage records for 250,000 of its customers.
The FSA says the bank held customers’ mortgage information on two separate, unaligned systems and didn’t carry out manual updates correctly between 2004 and 2011.
This meant that some Halifax customers on standard variable rates (SVRs) received confusing information about their mortgages. This was because the bank couldn’t identify accurately which customers had a cap on their SVR.
To compound the error, they were then excluded from a goodwill compensation programme while a staggering 22,700 other customers, whose mortgages were fine, mistakenly received compensation payments totalling £20.4 million.
As a result, the FSA has ruled that Bank of Scotland breached Principle Three of its Principles for Business, which requires a firm "to organise and control its affairs responsibly and effectively”.
As the bank co-operated with the FSA investigation, it avoided a larger fine of £6 million.
It's the latest in a string of high-profile bank IT failures, including a software upgrade that went wrong at Royal Bank of Scotland (RBS) that affected RBS, NatWest and Ulster Bank customers, and Nationwide customers being double-charged.