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Capital One has been fined £175,000 by the country's financial watchdog after failing to treat its payment protection insurance (PPI) customers fairly.

The Financial Services Authority (FSA) says the bank did not provide adequate systems and controls during its sales process, with 50,000 customers not receiving important information about their policies between January 2005 and April 2006.

Capital One, which sold 335,000 PPI policies in 2005 alone, negotiated a 30 per cent reduction in the fine after agreeing to an early settlement.

And the firm itself has insisted that it cooperated with the FSA at every stage of its investigation.

The FSA had been probing the way in which PPI was sold - on a non-advised basis - to Capital One's credit card customers, leading to the bank agreeing to pay compensation to consumers.

It is estimated that the final compensation bill will come to £3 million.

FSA director of enforcement Margaret Cole today insisted that the watchdog remained committed to driving "much better practice" in the PPI industry.

"This fine and other recent PPI-related enforcement cases show we will crack down where firms fail to treat their customers fairly in this area," she said.

"It is unacceptable for people to be put at risk of buying unsuitable protection insurance through not being given the right information at the right time. And consumers should also remember that PPI on credit cards and loans is almost always optional and consider whether they need it before signing up."

Commenting on the fine, Sanjiv Yajnik, chief executive officer of Capital One, said: "Capital One values its relationship with its four million customers. We consistently review our policies and practices and had made a number of significant improvements prior to the FSA's investigation."