The City regulator is preparing to relax its rules on insider information to key shareholders.

Firms may be allowed to brief institutional investors on issues such as capital raising or board appointments before they are made public.

But the Financial Services Authority (FSA) said share price-sensitive statements, such as profits warnings, would have to be sent straight to the stock market.

It stressed the current regime covering company disclosure was too strict and could hinder the smooth running of the City.

The FSA took on new powers in December, which included the power to impose unlimited fines on directors for breaching rules.

A spokesman said the watchdog was already overlooking what were technically rule breaches and wanted to clear up the situation.

He said: "A lot of people have come to us and asked 'Is this allowed? Is this not allowed?' and we have been talking to them individually.

"We thought it would be better to provide some detail, define it more closely, and we are going to open up consultation in November."

Under the FSA's proposals, a company would be allowed to brief "insiders" on issues such as the impending appointment of a new chief executive.

The shareholder would be forbidden from acting on the inside information or trading in the group's shares until after a public announcement.

Companies would not be able to brief favoured analysts or investors on a downturn in trading or profit expectations.

The spokesman said: "The line is very clear - selective disclosure of clearly price-sensitive information is not allowed."