FSA: We'll fine any bank chiefs who go back to bonus culture

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Hector Sants, the chief executive of the Financial Services Authority, has told bank chiefs that they risk heavy penalties by offering pay packages which include guaranteed bonuses of more than a year's pay.

Chancellor Alistair Darling is urging the FSA to step in after City institutions signalled that big bonuses were making a comeback, less than a year after the financial system came close to meltdown.

Eyebrows were raised at the Treasury after it emerged that 5,500 London-based staff at Goldman Sachs were in line for bonuses of an average £500,000, after the Wall Street giant announced £2billion in profits for the second quarter.

The FSA's action is seen as the first major move in attempts to stop the return of bumper bonuses which encouraged high-risk banking practices.

Mr Hants has written to 40 chief executives in the financial industry, stressing that using long-term guaranteed bonuses to recruit staff may break the FSA's new pay code, expected to come into effect next year.

"It is essential that the market does not revert to remuneration practices that would be incompatible with our intended outcomes," he wrote.