The Financial Conduct Authority was asked to pay £750 and apologise to the individual, after its watchdog the Complaints Commissioner found "significant failings" in the way the regulator handled the case.
The complaint centred around a video published by the FCA alongside a paper on vulnerable consumers in 2016, which showed the complainant and their two children.
The member of the public was unaware they featured in the shot however, which took place in a shopping centre and focused on the family for around ten seconds.
In 2019 the complainant became aware of the video online, which they claimed had violated their privacy and caused "emotional stress" at the thought of the footage shot of their children without permission.
In October last year the member of the public complained to the FCA and asked for the video to be taken down.
The regulator did not uphold the complaint but told the complainant the next day the video had been taken down and an edited version, which did not feature the family, had been published instead. But a Google search months later found the old version of the video still existed online.
The FCA had initially claimed it had not found the family "suffered any harm or loss that would require a payment to put right" and they had only featured in the background of the filming.
But the Complaints Commissioner disagreed with the regulator, warning its decision to not uphold the complaint was "in part based upon a false premise".
Commissioner Antony Townsend said: "There is a big difference between a shot in which people appear incidentally in the background, and a shot in which those people are the chosen focus of the camera.
"I have watched the video footage. Contrary to the impression given by the FCA’s description – ‘walked past’, ‘in the background’ – the camera clearly focusses upon you and your family for around ten seconds."
Mr Townsend praised the FCA for its initial quick action to remove the video from the public domain, despite it later transpiring it had not successfully done so, but warned its decision had given a "misleading impression" of the video footage.
He added: "As a matter of good practice, I think that it was at least questionable whether the FCA should have included a clip focussed on you and your family, including two young children, without your permission.
"The fact that the FCA’s intentions when filming may have been benign is beside the point: you and your family were chosen to be the focus of a shot in a video on vulnerable consumers."
The commissioner recommended the FCA pay the individual £750 in compensation, which he said was higher than most awards under the complaints scheme.
The FCA agreed and in response said: "The FCA communications team are responsible for the production of videos that are published on the FCA website.
"Periodically, we update our policies across our communications output to ensure we follow good practice.
"The current policy includes measures which are designed to ensure that members of the public are not featured in videos without their permission."
The complaint also featured concerns raised over delays faced in the regulator's complaints handling, a running theme which has received attention from both the commissioner and MPs in recent months.
In its annual report the commissioner warned the past year had been "dominated" by shortcomings in the regulator's complaints team after MPs were forced to step in earlier this year amid ongoing "troubling concerns".
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