RECKLESS bankers could be stripped of bonuses up to 10 years after they are awarded under plans set out by the Bank of England.

The changes are part of proposals to introduce a tough new regime for lenders in the wake of the financial crisis.

Newly confirmed rules - which will come into force in January in time for the next round of City bonuses - will mean pay-outs can be clawed back up to seven years after they are handed out.

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These rules, finalised by the Bank's Prudential Regulation Authority, will not apply retrospectively, partly for fear this could result in legal action.

But as part of a further consultation, authorities said they were looking at extending clawback beyond seven years from the date of a bonus award to enable the term to be extended by three years for senior executives.

This could be activated if there were a continuing internal or regulatory investigation over a "potential material failure" at a bank that might be linked to the boss in question.

The proposals from the Regulation Authority and City watchdog the Financial Conduct Authority would also beef up firms' ability to recover bonuses for bosses even if already paid out "if risk management or conduct failings come to light at a later date".

Business Secretary Vince Cable welcomed the moves, saying: "Enormous damage has been done to the UK by the collapse of the banking system. It must not happen again."

Shadow chancellor Ed Balls said the Bank was doing the right thing but critics warned of the risk of undermining the City by pushing talent and investment overseas.

A Treasury spokesman said: "This Government has been clear banks must act responsibly in setting their pay policies, and we have consistently taken robust action to tackle inappropriate remuneration."

The announcement follows the financial crisis and a series of scandals in recent years, such as the mis-selling of Payment Protection Insurance, which has already cost the banking industry more than £20 billion in compensation costs.

Bonus rules have been strengthened since the credit crunch struck, with bank payouts deferred for three to five years and made largely in shares. But there has been frustration millions of pounds in bonuses paid out in the run-up to the meltdown are untouchable.

This consultation sets out plans to extend bonus deferrals to seven years for senior managers, but stops short of a nine-to-11-year period that might reflect the impact of strategic decisions they have made as this could damage incentives.

They also outline a new approval regime for senior bankers in positions with the potential to cause the firm to fail, as well as certification rules for a second tier of staff who could pose harm to the bank or customers.

Barclays chief executive Antony Jenkins said the clawback rule "could be extremely useful".

But CBI director-general John Cridland sounded a note of caution. He said: "We need to be careful we do not create uncertainty that might make it increasingly hard to attract talent to London."

Mark Littlewood, director-general of the Institute Of Economic Affairs, a free market think-tank, criticised the plans. He said: "If the Bank of England is serious about fostering an ethical culture in the UK banking sector, a clawback scheme on bonuses is entirely the wrong way to go about it. The financial industry is already one of the most heavily regulated in the economy. If we persist with this upward trend of regulation, we risk undermining the City and pushing talent and investment overseas."