The Financial Conduct Authority said HBOS had identified suspicious conduct in Reading in early 2007 but did not tell the regulator until 2009, the year Lloyds rescued the bank.
Six people including two former HBOS bankers were jailed last year for a combined 47 years for their role in fraud at the Reading branch.
The fraud, which occurred between 2002 and 2007, hurt hundreds of struggling small businesses, pushing many into bankruptcy.
The businesses were referred to turnaround consultancy, Quayside Corporate Services, and then loaded with unmanageable amounts of debt before being taken over and asset-stripped.
Failings delayed investigations into fraud, says FCA
The FCA said HBOS failed to disclose information appropriately to the then regulator, the Financial Services Authority (FSA).
Mark Steward, the FCA’s executive director of enforcement and market oversight, said the bank’s failures caused delays to investigations by the regulator and the police.
“There is no evidence anyone properly addressed their mind to this matter or its consequences,” Steward said.
The fine was reduced by almost £20mln because the bank agreed to settle, sparking outrage among some of the affected businesses.
HBOS Reading victim group SME Alliance declare today's reduced fine from FCA "insulting". On long delay in report "justice delayed is justice denied"— Jim Armitage (@ArmitageJim) 21 June 2019
The FCA also banned Lynden Scourfield, Mark Dobson, and husband and wife David Mills and Alison Mills, who were involved in the fraud, from working in financial services.
Lloyds boss apologises to fraud victims again
Lloyds said it welcomed the FCA’s “comprehensive investigation” and accepted the watchdog’s findings.
The bank said since the acquisition of HBOS it has ensured “tighter controls, more robust risk management and an entirely different culture than was evident during the fraud”.
Chief executive, António Horta-Osório, said Lloyds takes the enforcement notice "very seriously".
"I want to apologise once again for the very deep distress caused to the customers affected by the HBOS Reading fraud. The perpetrators of the fraud rightly went to jail for the crimes they committed."
Lloyds has previously said 71 victims of the fraud have been offered compensation and 98% have accepted those offers.
Former Deal or No host, Noel Edmonds, was among the victims. He claims his former entertainment business collapsed as a result of the fraud.