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* EBA to allow exclusions from cap in "justified cases"
* Exclusions can be vetoed by regulators
* Flexibility means up to 12,000 might escape cap
* PwC says new exclusions a modest victory for banks
By Huw Jones
LONDON, Dec 13 (Reuters) - Bankers in the European Union earning more than 500,000 euros ($688,000) a year may be excluded from a cap on their bonuses if they are not major risk takers, according to a revised rule from the EU's banking watchdog on Friday.
Faced with public anger at banking excess, the EU approved a cap on bankers' bonuses, limiting them to no more than their annual salary, or double that amount with shareholder approval. The cap will take effect on bonuses awarded for performance in 2014 and handed out in early 2015.
The European Banking Authority (EBA) is responsible for implementing the cap, and on Friday published its final rule, which introduces flexibility for some bankers to escape the net "in justified cases".
"Institutions will have to ... demonstrate that the excluded staff on the basis of the business unit they are working in, as well as of their duties and activities, have indeed no material impact on the institution's risk profile," EBA said.
Based on EBA figures, flexibility introduced into the final rule means that up to 12,000 bankers might escape the cap.
"I don't think there is any doubt it will make a difference. It's a small-to-medium victory for the industry," said Jon Terry, a partner at consultancy PwC.
The Association for Financial Markets in Europe, a banking industry body representing top lenders, and the British Bankers' Association had no immediate comment.
In the original draft, bankers earning more than 500,000 euros were automatically affected, even if they did not meet EBA's criteria for risk taking. The final rule eliminates the automatic trigger based on salary and incorporates a new system of scrutiny for high earners who want to be excluded.
A bank will have to inform its local regulator about staff who earn 500,000 to 750,000 euros and who are being excluded from the cap. The regulator can challenge them.
Those earnings over 750,000 euros will need prior regulatory approval to be excluded. The EBA must be consulted about regulatory approval for exclusions of those earning more than a million euros.
PwC's Terry said the approval system will increase work for the banks, and Britain's Prudential Regulation Authority is unlikely to ask EBA for many exclusions for top earners.
"For bankers earning over a million euros, they can assume nothing has changed, but there is a distinct possibility for staff at a bank's asset management units to come out," he said.
The final rule also requires banks to identify material risk takers, even if they don't trigger any of the criteria EBA sets out in the rule. The aim is to keep some key risk takers from escaping the net.
Most of the bankers that will be hit by the cap are based in London, and Britain is challenging the cap in the EU's highest court.
Even before the ink dries on Friday's final version of the rule, banks are taking steps to circumvent it. Those include bumping up fixed pay or looking at extra "allowances" on top of basic salaries.