Banks that have agreed to pay their executives a guaranteed bonus for more than a year risk heavy penalties, the head of the Financial Services Authority has warned, in one of the starkest signs yet of the crackdown on perceived City excess.

In a letter sent to more than 40 chief executives within the financial services industry, Hector Sants said that using long-term guarantees to lure star investment bankers could put them in breach of the authority’s new remuneration code.