The Financial Conduct Authority said it has found serious problems in 12 SME businesses set up to handle payment protection insurance complaints.
The watchdog said it had identified issues with complaint handling decisions and customer communication procedure and was working closely with the companies involved to improve performance.
The FCA said one medium-sized firm, which it has not named, had been referred for enforcement action following its probe, and it was deciding whether others should also face sanctions.
The organisation said its review covered smaller high street banks, building societies, credit card providers and personal loan companies which together were handling around one million PPI complaints and which had secured £1.1 billion of redress payments for their clients.
Clive Adamson, the director of supervision at the FCA, said: “We expect firms to deliver fair outcomes to PPI complainants. In our review, we found that some firms are doing this while it is clear others still have some way to go.
“I am encouraged that the firms in scope of our review have taken immediate steps to put in place the necessary remedial measures, and I expect them to ensure they have robust processes in place to work through the remaining complaints, so that eligible complainants can be paid out as quickly as possible.”
PPI compensation payments increased to £528 million in July, the first time the figure has gone above the £500m mark this year.