Individuals in the UK would be able to buy into regulated hedge funds for the first time as part of reforms under discussion at the chief City regulator.

The Financial Services Authority will this month publish a discussion paper, prompting a debate on whether the £275bn retail fund management industry should be able to engage in the sort of risky investment strategies used by hedge funds. This includes shorting - selling stocks they do not own in the expectation of buying them back more cheaply - investing in derivatives and taking on more debt.