According to a Financial Times report, the FSA will recommend that businesses have adequate plans in place to deal with an outbreak of avian flu in its forthcoming Risk Assessment document, to be published in two weeks.

The annual document highlights areas the regulator believes will be high risk for the sector in the coming year. The FSA says the document will list bird flu will be listed along side other risks such as terrorism because it has emerged as a global risk.

The warning comes as banks draw up business contigency plans to deal with possible high levels of absenteeism in the event of widespread outbreak of bird flu. Last week HSBC said it estimates that a widespread bird flu pandemic could affect up to half of its global staff.

Bob Piggott, head of group crisis management at HSBC, said the bank is estimating that up to 50% staff could fall ill at the peak of the next flu pandemic.

HSBC is also preparing for staff that have to care for family members to work from home using video link and teleconference facilities and is also planning for office cleaning once an hour in an effort to limit infection.

The bank's 50% figure is higher than official forecasts, including estimates from the World Health Organisation (WHO) which is expected to advise companies to plan for 25% absence.

The FSA claims it won't be prescriptive about the steps firms should take, but it is calling for companies to seriously consider the impact of an outbreak of bird flu on their business.

In a separate move, the FSA has come under fire from City executives over plans to scrap a central approvals system for people working in wholesale financial services, says the FT.

The proposal is part of the FSA's initiative to reduce red tape for businesses but has been condemned by City bosses which say any removal of the vetting system would threaten the integrity of the industry.

The regulator will say next month whether it will go ahead with plans to ditch the approvals system. It will also decide whether to go ahead with proposals to drop compulsory examinations for staff in the wholesale markets, which has also been criticised.

The proposals have drawn criticism from a number of industry bodies including the London Investment Banking Association, the British Bankers' Association, the UK Society of Investment Professionals and the Securities & Investment Institute, as well as City of London police.

But John Tiner, FSA chief executive, argues that City bosses should be capable of managing staff without its instruction.