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Barclays has set aside £2.6bn to compensate customers and regulators for a series of banking scandals that have plagued Britain's second-biggest lender over the past year.

Barclays will increase its estimation of the cost of repaying small and medium-sized businesses who have been mis-sold interest rate derivatives by £400m, the bank said Tuesday in a statement published on its website. That brings the total cost of compensation to around £850m as of 31 December.

Barclays also said it had increased the pool of cash it will need to pay back customers who were improperly sold payment protection insurance (PPI) by £600m. Collectively, the bank said it has set aside £2.6bn and paid out £1.6bn as of 31 December.

"Based on claims experience to date and anticipated future volumes, the provision represents Barclays' best estimate of expected future PPI redress payments and claims management costs," the bank said. "Barclays will continue to monitor actual claims volumes and the assumptions underlying the calculation of the PPI provision."

Last week, the Financial Services Authority warned the country's biggest banks that they face significant costs and potential fines related to the mis-selling of interest rate products to small and medium-sized firms.

pilot scheme that examined the sale of 173 so-called interest rate swap agreements (IRSAs) to British firms found that at least 90 percent of those did not comply with at least one or more regulatory requirements, the FSA said, adding that a "significant" number of cases are likely to result in redress to the customer who was sold the product.

As many as 40,000 of the hedging products may have been sold by British lenders to UK businesses over the past decade.

Britain's biggest banks will take an earnings hit from the costs associated with paying compensation to the thousands of UK businesses which were mis-sold interest-rate hedging products. Fitch Ratings estimates the amount owed to businesses which were mis-sold interest rate swap agreements (IRSA) will be 'manageable' but will still have a negative impact on bank earnings in the short to medium term.

Barclays will publish its full year earnings on 12 February.

British banks have so far set aside around £10bn to compensate customers who were improperly sold payment protection insurance, or PPI, on their mortgages and credit cards. The FSA has estimated that PPI revenues for banks had peaked at £5.5bn in 2011.

Last June, Barclays paid a then-record £290m to US and UK authorities for its role in attempting to manipulate the global benchmark interest rate known as Libor.

Barclays' shares rose 1.08 percent in London trading to change hands at 294.2 pence each.