The Financial Services Authority (FSA) has played down the request made by Legal & General, the UK life assurance company, for it to investigate the activities of hedge funds.

On Monday David Prosser, chief executive of L&G, called for the regulatory body to introduce a tax designed to curtail short selling among hedge funds. Short selling is where investors sell shares that they do not own in the expectation that prices will fall allowing them to be bought back more cheaply.