Bankers found guilty of reckless misconduct in Britain could end up in prison and be stripped of bonuses, under draconian proposals to clean up the City of London published on Wednesday.

The radical penalties were put forward by an official commission which said that a string of scandals in British finance had caused an "enormously damaging" loss of trust.

The Parliamentary Commission on Banking Standards, created by the government after the Libor rate-rigging scandal which had global repercussions last year, made the recommendations in a final report amounting to a blunt indictment of malpractice.

"The loss of trust in banking has been enormously damaging; there is now a massive opportunity to reform banking standards to strengthen the value of banking in the future and to reinforce the UK's dominant position within the global financial services industry," the report read.

The commission recommended that the state-rescued Royal Bank of Scotland should be split into a so-called good bank and a bad bank, and criticised the government for "political interference" in both RBS and fellow bailed-out lender Lloyds Banking Group.

The review was published ahead of finance minister George Osborne's annual Mansion House speech to business leaders, in which he is expected to address the government's privatisation plans for RBS and Lloyds.

The commission also concluded that senior bankers must be made personally responsible for malpractice -- with a new criminal offence of reckless misconduct carrying a prison sentence.

Under the proposals, more remuneration would be deferred for longer periods of up to 10 years, in order to "reflect the longer run balance between business risks and rewards".

Regulators would be granted new powers to cancel all outstanding deferred remuneration.

Bankers would be licensed and sign up to a new code of conduct, under which all key responsibilities would be assigned to specific senior officials who would be held accountable.

"Recent scandals, not least the fixing of the Libor rate that prompted parliament to establish this Commission, have exposed shocking and widespread malpractice," said Commission chairman and Conservative lawmaker Andrew Tyrie.

"Taxpayers and customers have lost out. The economy has suffered. The reputation of the financial sector has been gravely damaged. Trust in banking has fallen to a new low.

"Prudential and conduct failings have many shared causes but there is no single solution that can restore trust in the industry. The final report contains a package of recommendations that, together, change banking for good."

The reputation of Britain's banking sector has been damaged in recent years by a string of scandals, including Libor rate-rigging, credit insurance mis-selling, and ongoing controversy over staff behaviour in the run-up to the 2008 global financial crisis.

The Treasury welcomed the review, describing it as an "impressive piece of work", and added that it would help the government "create a stronger and safer banking system".

Tyrie added in the report: "Under our recommendations, senior bankers who seriously damage their banks or put taxpayers' money at risk can expect to be fined, banned from the industry, or, in the worst cases, go to jail. That has not been the case up to now."

The Commission was formed last year after revelations that Barclays bank tried to manipulate the Libor rate, which is used as a benchmark for global financial contracts worth about $300 trillion.

Libor is calculated daily, using estimates from banks of their own interbank rates. However, the system has been found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure.