The Financial Services Authority (FSA) has admitted it cannot control bonuses paid by City banks as it prepares to publish a new code on pay and bonuses this week.
Hector Sants, head of the financial watchdog, said it was not the FSA’s job to restrict bonuses.
He said: “The question of the size of individual payments is not one for the regulator. That is one for politicians and society as a whole.
“Our job is to make sure that banks in their compensation policies do not put those institutions at risk, which is what happened in the past.”
In line with the code to be announced this week, banks will be made to “clearly articulate” their pay and bonus policies.
Last week, Barclays ignored the FSA’s current guidelines on bonuses by promising three investment bankers two years’ worth of bonuses.
The FSA had previously warned that guaranteeing bonuses for more than a year regardless of the bank’s performance encouraged people to take risks.