The Financial Conduct Authority also banned four individuals from working in financial services today (June 21) for their role in the fraud, which took place in its Impaired Assets Team of Halifax Bank of Scotland.
The City-watchdog found the bank had identified suspicious conduct in the team in early 2007, when its then-director, Lynden Scourfield, had been sanctioning limits and additional lending facilities "beyond the scope of his authority undetected for at least three years".
According to the FCA this additional lending had been provided to businesses that were in financial distress, and involved the use of turnaround consultant, Quayside Corporate Services Limited.
The total losses to the Bank of Scotland as a result of the fraud were £245m.
On numerous occasions between 2007 and 2009 Bank of Scotland neglected to disclose any information about the fraud to the then-regulator the Financial Services Authority and failed to "understand and appreciate the significance of the information" despite "clear" warning signs fraud might have occurred, according to the FCA.
The FCA said there was "insufficient challenge, scrutiny or inquiry across the organisation and from top to bottom".
The Bank of Scotland did not report its suspicions to the FSA until 2009, by which time the regulator said it had risked prejudicing the criminal investigation conducted by Thames Valley Police into the matters.
According to the FCA had the Bank of Scotland reported its suspicions to the regulator when it initially became aware of the fraud in 2007, the criminal misconduct could have been identified much earlier.
In a statement released today Mark Steward, executive director of enforcement and market oversight at the FCA, said the Bank of Scotland failures caused delays to the investigations by both the FCA and Thames Valley Police.
He said: "There is no evidence anyone properly addressed their mind to this matter or its consequences.
"The result risked substantial prejudice to the interests of justice, delaying scrutiny of the fraud by regulators, the start of criminal proceedings as well as the payment of compensation to customers."
The FCA said people at the bank had failed to grasp the consequences of their actions including how failing to report their suspicions might delay "proper scrutiny" of the misconduct and "prejudice the interests of justice".
The four individuals now banned from working in the industry are Lynden Scourfield, Mark Dobson, Alison Mills and David Mills.
Mr Scourfield and Mr Dobson were part of a group of six sentenced for their part in the fraud in 2017, following an investigation by Thames Valley Police.