MPs are calling for an investigation into potential criminality regarding the handling by Lloyds Banking Group of a fraud at its Hbos Reading unit more than a decade ago and into the role of auditor KPMG.

The All Party Parliamentary Group on Fair Business Banking, which is chaired by Kevin Hollinrake MP, has urged the Serious Fraud Office (SFO) and National Crime Agency (NCA) to look into the matter as "the only way that we can truly identify and provide remedies for the destruction of individual businesses and the loss that investors have suffered".

"We need an impartial, independent redress process so that those whose lives and businesses have been wrecked by these scandals have their faith restored in the system and receive proper compensation for their loss," the APPG argues.

It follows the online publication of an explosive report from 2013, alleging serious misconduct by the lender over the handling and disclosure of the fraud earlier this week.

The internal report by a Lloyds Banking Group employee, who has since departed the firm, details allegations of criminal misconduct by senior bank staff and auditors around the handling of the incident.

It alleges that top executives at HBos understated the extent of liabilities left by the fraud to regulators and to shareholders ahead of the takeover of the stricken bank by Lloyds in early 2009. It also alleges serious misconduct by auditors KPMG.

The APPG said noted any probe that did not take into account the impact the case had had on individuals and businesses "severely undermine confidence in our regulatory and enforcement agencies".

The group of MPs is also writing to Stephen Haddrill, chief executive of the Financial Reporting Council (FRC), to press for a new investigation into the KPMG audit of HBos, which gave the bank a clean bill of health only two months before it hit financial difficulty.