The British government on Thursday published proposals for tough new banking laws that would give the country's main financial watchdog the power to claw back bonuses that breach internationally agreed rules.The proposals also widen the remit of the Financial Services Authority to an explicit task of ensuring financial stability, allowing the regulator to collect data from any firm that is deemed to be systematically important, including foreign firms and non-regulated hedge funds.

Other measures under the sweeping Financial Services Bill include new powers for consumers to collectively challenge banks in court, the requirement that banks have a "living will" to ensure they can be wound down without taxpayer support and measures to prevent "abusive" short selling in financial markets.Short-selling is a practice that allows traders to make money by selling "borrowed" shares, anticipating their price will drop, and then buying them back at a lower price to return to the lender.

The bill we are introducing today is central to the Government's reform agenda that seeks to empower consumers and make sure that, in the future, taxpayers will not be called on to protect banks from the consequences of their actions," Treasury chief Alistair Darling said as he introduced the draft legislation to Parliament.The heavy-hitting proposals reflect an increased effort by Prime Minister Gordon Brown's ruling Labour Party to tackle banking reform ahead of a general election next year as it trails the opposition Conservative Party in the polls.

The bill must be approved by Parliament before becoming law, and could be derailed if it is not passed before the next national election, which must be held by June.The Conservative Party has far different plans  it wants to abolish the Financial Services Authority and hand all bank supervisory powers to the Bank of England. The government's bill will be debated on Nov. 26 and lawmakers in the House of Commons may vote on it as early as next month.

Darling detailed the British proposals as U.S. Treasury Secretary Timothy Geithner pushed Congress to move quickly to overhaul U.S. financial rules. Both the House Financial Services Committee and the Senate Banking Committee are working on their own versions of sweeping overhaul plans. But the two panels are taking sharply divergent approaches in some areas.In remarks prepared for an appearance before the Joint Economic Committee, Geithner said a rapid conclusion is needed to keep the economic recovery on track.

But banking executives have warned that excessive reform of the sector by governments and regulators  including a crackdown on bankers' bonuses would be damaging to economic recovery.In a sign that the financial sector is increasingly resisting regulation, the bankers also cautioned that the British government's plans to toughen rules could cripple London's position as a leading financial center if not matched by other countries.HSBC Holdings PLC Chairman Stephen Green said earlier this week that the "danger is going over the top with risk averse measures, loading more costs on the system." Richard Holmes, Europe CEO of Standard Chartered PLC, said he was concerned the government will "regulate international business away from the U.K.

Dealing with bonuses has become as much a political as a financial issue since taxpayers were billed for a multibillion state bailout of major banks particularly in Britain where the ruling Labour Party heads into a general election next year trailing the main opposition Conservative Party.The legislation would give the Financial Services Authority the power to cancel contracts that breach a banking remuneration code agreed by the Group of 20 nations earlier this year. The regulator could fine banks that fail to comply.The new rules would apply to British banks and to the British operations of global investment banks like Goldman Sachs. Several have already agreed to abide by the G-20-approved rules, which link bonuses to long-term performance.