Alistair Darling has called on the Financial Services Authority (FSA) to tackle the culture of "huge bonuses" in City of London firms.

Speaking at the Labour Conference this week, he said bonuses should encourage good long-term decisions, not short-term reckless ones.

"It's essential that bonuses don't result in people being encouraged to take on more and more risk without understanding the damage that might be done, not just to their bank but to the rest of us in the wider economy," he commented.

The FSA has said that it could penalise those who take too many risks in order to win their annual bonuses.

It explained that individual bonuses would not be regulated, but day deals will be analysed as part of risk assessments of firms.

Earlier this month the FSA prohibited the active creation or increase of net short positions in publicly quoted financial companies.

This position could be extended to other sectors if judged necessary, the body added.