US embassy cables released by WikiLeaks and exclusively published by the Guardian reveals that senior US officials urged British banking regulators to take action against Iranian banks suspected of financing nuclear programmes and terrorism.

The cable says that former US state department under-secretary Reuben Jeffery and treasury assistant Patrick O'Brien met with UK banking regulators between 15-16 May 2008 to urge for increased scrutiny and tougher actions against Iranian banks operating in London.

At a meeting detailed in a cable a month later, the US encouraged the UK to "step into a leadership role" to deter a "nuclear-armed Iran" by halting the activities of Iranian banks in London, reported the Guardian.

The exclusive went on to show that Hector Sants, chief executive of the Financial Services Authority (FSA) in UK, was "forced" during the meeting to defend the regulator's record on Iran 

O'Brien told the FSA executives that Iran was using state-owned institutions – Bank Sepah, Bank Melli and Bank Saderate – to facilitate its proliferation efforts and its support for terrorism.

He expressed particular frustration about Bank Sepah, which was the subject of official international sanctions later and was one of four Iranian banks in London.

"With four Iranian banks continuing to operate in London, O'Brien said that Middle East and Asian countries are not likely to take any action on its Iranian banks unless London moves first," the cable said. "If the UK acted publicly, the US would be willing to take message to the Middle East and Asia to press for similar action in other jurisdictions."

Sants argued that the FSA needed evidence of specific actions being taken by individuals. His colleague Phil Robinson said "the FSA had 'pushed the boundaries' of what it can do in looking at the parent entities in Tehran, and must prove the 'intent' of the person transferring the money," the cable reported.

"All the Iranian banks are 'keeping their noses clean' in the UK, Robinson said, and the FSA can only address actions of the London-based subsidiaries."

According to a piece by GFS news, "while a legal framework in the UK details that any individual working for a bank must face a 'fit and proper person' test, the FSA and the Treasury must prove a person is otherwise once this is granted."

The cable says: "The UK has taken all the evidence provided by the US and applied it as far as it can legally but does not have sufficient evidence that it can put in front of a tribunal in taking further action against Sepah," with this bank a particular target for O'Brien's criticisms.