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Following Manchester City's announcement of £195 million loss, the European governing body has dropped plans to impose penalties on clubs who breach the new terms

Uefa has decided to shelve proposals to impose a transfer ban on clubs that breach its financial fair-play rules on the grounds that its planned penalties will be legally unenforceable.

The European governing body confirmed on Tuesday that plans to impose a transfer embargo have been dropped, despite the support of leading clubs, because they believe they would be unable to enforce such rules.

Arsenal and Inter Milan were among the clubs who supported the proposal, which gained momentum in Europe last week after it was announced Manchester City had recorded a £195 million loss last season.

The Financial Fair Play (FFP) rules require clubs to lose no more than £38m over the next three seasons in an attempt designed to crack down on debt-laden clubs such as Manchester City, who are unlikely to meet such regulations.

But Uefa have revealed that control over player registrations lies with national associations and Fifa, but not themselves, and therefore have decided to drop the proposals.

The European governing body initially intended to impose a credible series of penalties just shy of expelling teams from European competition altogether, but now intends on scaling down penalties for breaching the rules, with many of the proposed sanctions believed to be legally fraught.

Lawyers advised Uefa officials that their plans to ban individual players from competition, because their signings contributed to the club's spending, could be open to restraint-of-trade lawsuits from the players, who could argue they only joined the club with the intention of European football.

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