A study commissioned by the European Commission has recommended reform of the transfer system to correct what it describes as abuses. The recommendations include limiting "inflated" transfer fees and a fair play levy on fees rising above a certain amount to ensure football remains competitive and to stop the rocketing cost of buying players.

Its findings claim valuations of "superstar" players are leading European football towards a "de facto system of closed leagues at elite level" and "an increasing competitive imbalance in both national and European competitions", with less than 2% of the money from transfer fees filtering down to smaller clubs or the amateur game. There are also concerns over criminality in the transfer market.

Proposals include

• Capping transfer fees after contract extension "at 70% of the gross salary owed to the player for the entire period of his contract" to ensure a fairer price.

• The regulation of buy-out clauses "to prevent abusive practices".

• The establishment of a "fair play levy" on transfer fees beyond a certain amount to fund redistribution from rich to less wealthy clubs to restore some competitive balance.

• Better publicising of the movement of players to ensure that solidarity compensations are paid to clubs and that the latter are aware of their rights.

• The establishment of a limit on the number of players per club.

• The regulation of the loan transfer system.

• Addressing of third-party ownership.

• Support for the implementation of financial fair play.

Since the Bosman ruling of 1995, which allowed players free movement within the European Union once their contract had expired, the report says football clubs' annual transfer spend has increased from €403m during the following season to €3bn in 2010-11, a rise of 744%. In this same period the number of deals has more than tripled, from 5,735 to 18,037. The spending is concentrated on a small number of clubs which have the largest revenues or are backed by "very wealthy investors".

The key stakeholders consulted for the study include Fifa, Uefa and the European Club Association, which replaced the G-14 group in 2008 as the pan-continental body that represents clubs. While there is no will to dismantle the current system, there are varying degrees of recognition among these bodies regarding the need to reform, although the ECA is particularly cautious that any changes might cause further problems.

"The European Commission fully recognises the right of sports authorities to set rules for transfers, but our study shows that the rules as they are do not ensure a fair balance in football or anything approaching a level playing field in league or cup competitions," said Androulla Vassiliou, European Commissioner responsible for sport. "We need a transfer system which contributes to the development of all clubs and young players."

A press release from Kea, the Brussels-based consultancy that conducted the study, stated: "Seventeen years after the Bosman ruling and 11 years after the informal agreement between Fifa, Uefa and the European Commission on the transfers of players, the document reveals that sporting regulation in relation to transfers has contributed to the increase of free movement of professional players without, however, managing to curb the amount of certain transfer fees.

"The study proposes measures to encourage transfer rules that contribute to more balanced and fair competition. While redistribution of transfer expenditures to clubs training players constitutes one of the justifications for the transfer rules, redistributive impacts linked to the transfer market remain limited. Indeed training compensation and solidarity mechanisms only account for 1.84% of the total agreed transfer fees within Europe."

The study states that the fundamental areas of concern include:

• A debt crisis that threatens financial and contractual stability.

• The influence of criminality on the game – trafficking of players, illegal betting, corruption and fraud, abusive terms of employment.

• New forms of investment in players that endanger the capacity of sporting bodies to regulate their activities, including third party ownership.

• The questioning of federations' role and power in organising and regulating the game in the face of more powerful clubs, run like businesses and sometimes quoted on the stock exchanges with an obligation to deliver financial results to their shareholders.

There is concern that "professional football has recently been confronted with a financial crisis in spite of strong income growth" which, in English football, has caused the continuing financial peril at clubs such as Portsmouth and before that at Leeds United.

The report states: "The turnover of the first division championships of the 53 Uefa member countries increased from €9bn in 2006 to €12.7bn in 2010. But overall net losses increased steadily over the period 2006-2010 to reach €1.64bn in 2010. 56% of the clubs concerned are reporting net losses for the year 2010."

It also claims: "In general the transfer market suffers from a lack of transparency in transactions [which] is encouraging a competitive imbalance. Therefore, the transfer matching system from Fifa and financial fair play from Uefa constitute very key developments whose implementation should be encouraged. They show the willingness of sporting bodies to tackle in a serious manner abuses related to some extent to the transfer market."

The results of the study will be analysed by the EU Expert Group on "Good Governance in Sport" at its next meeting in April. The group, which is also discussing measures to address match-fixing, is expected to deliver a report to EU sport ministers before the end of the year.