The bosses of leading City firms are to be made more accountable for their actions under proposals that could make them wait up to seven years for their bonuses and potentially be jailed if their banks fail.

Responding to recommendations made by the parliamentary commission on banking standards, the two main City regulators on Wednesday set out lengthy consultations (pdf) aimed at framing a new licencing regime for bankers and the creation of a "potential criminal liability under a new offence relating to a reckless decision causing a financial institution to fail".

The Financial Conduct Authority (FCA) and the Bank of England's regulation arm, the Prudential Regulation Authority (PRA), want the new regime to be in force by January next year and would force bankers to prove they had acted appropriately – a reversal of the burden of proof.

Bankers would be subjected to annual checks to ensure they comply with a regime which covers those involved in what is known as a "significant harm function".

Vince Cable, business secretary, told Sky News: "The banks are now being made much safer, but a key part of that is to ensure that bonuses are not abused and, therefore, the powers to have clawback for seven years [are being introduced]. The other element of the announcement is to have effective criminal sanctions if people are really reckless and destroy their own institutions and put the public at risk. Potentially people could be in prison if they do that under the new rules."

But lawyers said it was unlikely anyone would face jail despite the attempt to introduce a new criminal offence. Alison McHaffie, a financial services partner with the law firm CMS, said: "As the regulator says in this paper, such prosecutions are likely to be rare. This is not only because lessons have been learned from the financial crisis but also because attributing criminal liability to individuals for a bank's decisions will be very difficult to establish and prove."

Pay experts said changes had also been made to the original proposal that bonuses be deferred for as long as 10 years, as recommended the parliamentary commission set up after Barclays was fine for rigging Libor two years ago.

Instead, for the most senior bankers, bonuses must be deferred for seven years and for less senior staff for five years, according to the consultation.

But new rules coming into force will allow bonuses to be clawed back for up to 10 years, although an idea that this could be done retrospectively has been dropped. Even so, bankers could be forced to repay bonuses already received as well as having deferred bonuses withheld.

The regulators are also looking at ways of stopping bankers being bought of their bonuses by new employers, and avoiding a repeat of scenario at Royal Bank of Scotland where former chief executive's Fred Goodwin's pension payments were eventually reduced.

"Despite these changes, the rules will still be seen as radical compared to what is being implemented outside of the UK," said Tom Gosling, head of PwC's reward practice.

The regulators note that the longer deferral periods for bonuses and tougher regime "may affect the labour market as risk-averse staff might be less willing to take on additional responsibility and progress to senior management level as a result".

Since the 2008 banking crisis changes have already been made to bonuses to ensure top bankers no longer receive payouts entirely in cash and that they are deferred for at least three years. New rules this year require bonuses to be capped at one times salary or twice if shareholders approve.

"Regulators are hoping the rules will help rebuild trust in the City, but our experience suggests that structural pay changes have limited impact on behaviour. The risk is that the new rules create a distraction from the work that banks are already doing to reform culture and improve conduct," said Gosling.