The Welsh regions are reportedly struggling to keep hold of some of their stellar names © Getty Images

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Wales' four professional regions have opted to introduce a salary cap for the first time in order to ensure the further development of young talent and greater financial sustainability.

In a landmark decision, the Blues, Dragons, Ospreys and Scarlets have agreed to implement a ceiling of £3.5million to cover players registered for European squads from 2012-13, with development and academy costs falling outside of this remit.

All existing contracts will be honoured, with the cap to be regulated and reviewed annually by a 'scrutiny committee' comprising regional board members, the chairman of Regional Rugby Wales (RRW) - the umbrella group representing the four teams - and an independent chairman.

The aim of the agreement is to move the regions towards long-term financial stability and away from wealthy benefactors, with the Welsh Rugby Union (WRU) backing the decision.

"The regions have come together with a shared sense of responsibility to get their own houses in order and find solutions," Stuart Gallacher, Chief Executive of RRW, said. "This agreement is the start of that journey. They are eager to do all they can to achieve greater self-sufficiency and our governing body, the WRU, has been wholly supportive of and endorsed the initiative we have taken.

"This is a powerful signal of our determination to achieve our aims amidst some tough economic challenges in Wales now and in the future. All four regions are working very hard indeed to manage their businesses more effectively in a very difficult environment for everyone.

"As part of that, it is essential that every element of the circa £30m annual costs involved with operating four professional rugby businesses in European competition, is examined in detail and managed effectively. The introduction of this agreement and the European squad salary cap illustrates pragmatic and responsible action in tough times."

A salary cap is already in operation in England, where the Aviva Premiership clubs are bound to an overall wage cap of £4million, while French clubs are also subject to financial strictures (£7.1million). WRU chief executive Roger Lewis praised the new agreement, although it remains to be seen whether it can make an impact on the current player drain affecting the regions, who have previously asked for further financial assistance from the union.

Welsh internationals James Hook, Lee Byrne and Mike Phillips are currently enjoying lucrative contracts in France, where they are expected to be joined by lock Luke Charteris and also possibly front-rowers Adam Jones and Gethin Jenkins.

"The WRU invests £6million in cash every year to the four regions, in addition to its funding of the four regional academies so is delighted to see the approach to build greater sustainability being taken by the regions," Lewis said.

"I know how hard Stuart Gallacher and the executives, chairmen and funding directors representing each individual region have worked to secure this solution. It faces up to the reality of the economic climate we all work in and ensures the regions progress within a workable financial and strategic plan.

"This is the right move at the right time for Welsh rugby and everyone will benefit from this new arrangement. A priority for the WRU, together with the four regions, within the elite game is to nurture and develop talented Welsh qualified players capable of challenging for senior Wales caps."

The new agreement does not affect the Participation Agreement between the WRU and RRW, put in place in 2009, which sees the £6million split between the four sides, with the governing body also funding the regional academies.