Hector Sants, the chief executive of the FSA commented on the “widespread concern that inappropriate remuneration schemes, particularly but not exclusively in the areas of investment banking and trading, may have contributed to the present market crisis.”

Mr Sants went on to say that bonuses “gave incentives to staff to pursue risky policies . . . to the detriment of shareholders and other stakeholders, including depositors, creditors and ultimately taxpayers.”

Reiterating the need to change the nature of remuneration policies within firms, Mr Sants stated that “if the policies are not aligned with sound risk management, that is unacceptable. Immediate action will be required to change policies.”

Although the FSA has previously spoken of its reluctance to become involved in setting remuneration levels, the letter – along with a general guide outlining “good” and “bad” policies – carries the implicit threat that any institutions with seemingly “bad” compensation plans can expect harsh regulatory punishment as the UK government plans to cut future recklessness, condemn past offences and rid British banks of their greedy reputations.