Banking giant Lloyds TSB has been fined £1.9m for failing to warn people properly about the risks involved in certain high income investment plans.
The company's Extra Income and Growth Plan (EIGP), which was sold through its branch network, promised returns of 10.25% - almost twice the then interest rate.
Under the scheme investors would get their capital back if a basket of stocks did not fall in value by more than a third.
But if the share price fell by more than a third, customers lost all of their investment.
Some of the stocks were shares like Marconi which declined sharply from their peak.
Lloyds TSB was not the only seller of these so-called precipice bonds, but the Financial Services Authority (FSA) thinks it was particularly aggressive at it.
The investments were often sold to cautious investors, who should not have been putting so much of their savings into such a risky product
It criticised Lloyds for pushing the product too hard to customers with no experience of owning shares.
Andrew Procter, FSA Director of Enforcement, said: "There was nothing wrong with the product itself, the problem was that too much of it was being sold to the wrong people."
The fine is the second biggest to be imposed by the FSA watchdog and the first to be levied by its new chief executive John Tiner.
Mr Procter added: "Lloyds TSB did not have in place sufficiently rigorous procedures and controls for considering all the issues surrounding the selling of the EIGP.
"It did not emphasise sufficiently to the branch network's financial consultants the need for investors, when buying the EIGP, to have appropriately balanced portfolios and the need for investors to retain sufficient liquid resources."
The bank is now contacting customers, some of whom invested as much as a third of their savings, to advise them of the announcement.
It has already set aside £300m to cover the compensation bill after details of the mis-selling emerged earlier this year.
In a statement, it said it had taken measures to tackle the problem, including an extensive examination of its training procedures.
"We ... now recognise that while the product was appropriate for some investors, we did not provide our staff with sufficiently in-depth training on how much of a customer's available funds should be invested in this particular product," the bank said in a statement.
Lloyds is also set to pay out £98m in compensation for 22,500 customers who lost money as a result of the bond mis-selling.
Sales of the high income bonds, designed by Scottish Widows group, were carried out in four tranches between October 2000 and July 2001.
Lloyds TSB acquired Scottish Widows in 2000.
In total, some 51,000 policies were sold.
The news comes as newspaper reports claimed Lloyds TSB is to create up to 1,500 jobs in India.
Citing a memo to staff, the reports said Lloyds TSB is planning to expand its existing operations in Bangalore and create a new one in Hyderabad.
The decision to move its back room operations to India would result in job losses in the UK, but the bank was unable to say how many jobs would go.
The memo added the cuts would be achieved without compulsory redundancies.