Watchdog says Swedish banks breaking bonus rules

* Majority of financial players breaking rules - FI study

* Govt minister blasts sector, says behaviour provocative

A majority of Swedish banks and financial firms are in breach of rules on bonuses, the Nordic country's market watchdog said on Monday.

A study by Sweden's Financial Supervisory Authority (FI) showed the bonus systems at more than half of the 41 financial institutions examined did not live up to rules put in place after the financial crisis.

The shortcomings mainly related to flawed definitions of risk-taking and remuneration, flawed payouts and insufficient analysis of risks, the watchdog said.

That the errors to a great extent relate to poor implementation is remarkable and points to a lack of understanding and insight in the sector as whole.

Sweden, like many countries, has tightened rules on bonus payments in the wake of the global financial crisis, which was seen partly caused excessive risk-taking among financial players keen to land hefty bonuses.

The Swedish government took a tough public line against bank payouts during the crisis, and Financial Markets Minister Peter Norman hit out at the behaviour in a separate statement.

That the financial players don't abide by the body of rules is provocative and reduces confidence in a sector that only recently was deeply involved in a development that led to crisis, unemployment and falling production, he said.

The Financial Supervisory Authority should take further action if needed to ensure that financial sector bonuses don't create hot houses for greed and increased risk-taking.

The financial watchdog's report did not say which financial institutions had breached bonus rules, but the FSA said it would begin separate investigations at all firms found at fault where there was the basis for further action. (Editing by Will Waterman)