LONDON (AP) - Britain's financial services watchdog defended itself yesterday against allegations that its new rules on bankers' pay had been significantly watered down from its initial proposals after complaints from financial institutions.

In a bid to curb the salary excesses that have been blamed for the current financial crisis, the Financial Services Authority (FSA) outlined a code to stop bankers from getting bonuses at high multiples of their salary or bonuses guaranteed for more than a year.

The FSA, which was criticised for failing to spot systematic problems that led to the global downturn, said that banks could face higher capital charges or other enforcement action if they failed to comply with the new rules.

However, it backed away from some stricter laws on the structure of bonus payments and reduced the number of firms that the new code will cover after industry warnings that the tougher measures would cripple London's position as a premier financial centre.

Vince Cable, the Treasury spokesman for the opposition Liberal Democrat Party, said that the regulator had missed the chance to assert its authority and "capitulated at the first sign of dissent".

But the FSA said the new rules, which come into force in January, still go further than anywhere else in the world and chief executive Hector Sants denied any suggestion it had been pressurised to soften the new rules.

"This is a tough code designed to do what the FSA is required to do by Parliament," Mr. Sants told BBC Radio, adding that it was not the agency's job to limit individual pay for "social reasons".

"We will make sure that banks are not put at risk by unreasonable and reckless risk-taking," he added.

The Group of 20 leading world economies agreed when they met in London in April on a broad set of principles on bankers pay, with "material progress" in their implementation expected by the 2009 bonus round.

Leaders will review progress on the issue when they meet again in Pittsburgh in September.

Even amid a global push to reduce the risk-taking associated with big pay, reports suggest that bankers' bonuses are again creeping up.

The London-based Centre for Economic Business and Research has forecast bonus payments by banks to hit £4 billion this year, up from £3.3 billion a year ago.

"The need to get clear rules and guidance in place is underlined by recent market developments where we have seen signs that some firms may be reverting to remuneration practices which we would regard as inconsistent with effective risk management," the FSA said in a statement.

The agency has condensed its 10 proposed principles into eight to make the requirements less prescriptive after consulting banks on the planned measures.

It had originally wanted two-thirds of bonuses to be deferred and for firms not to pay bonuses at all if they reported losses. It also wanted pay to be linked to the performance of the entire firm, not just a particular division.

Those three proposed measures will now be regarded as guidance rather than a principle.

The rules will apply to around 26 banks, instead of 47, after non-British lenders were exempted from the requirements.

Peter Montagnon, the Association of British Insurers' director of investment affairs, said that the FSA had stuck to its principle of linking remuneration to risk, despite making the code less prescriptive and narrowing the scope of the organizations covered.

"The new version is much more likely to deliver the desired outcome without excessive compliance burdens," Mr. Montagnon said.