Americans who want to invest in hedge funds will need personal wealth of at least $2.5m (£1.3m), rather than the present $1m, under a tightening of rules proposed last night by financial regulators in Washington. The dramatic growth of the hedge fund industry, together with a handful of high-profile failures, has prompted the securities and exchange commission to act.

Its chairman, Christopher Cox, said commissioners would vote on the proposal to more than double the minimum threshold at a scheduled meeting today.

"We are going to be lifting the accredited investor standard from where it has been since 1982 at $1m of net worth to $2.5m," he told reporters.

There are an estimated 8,800 hedge funds in America, managing $1.2 trillion in assets - which represents growth of 3,000% in 16 years. Politicians in Congress have become increasingly vocal in calling for greater scrutiny of the industry.

In June, a US court struck down a rule requiring hedge funds to register with regulators. However, this could be replaced with a degree of international oversight - the European Central Bank this week proposed a system of registration spanning London, Washington and other financial capitals to provide greater transparency of the flow of money.

Concern peaked following the collapse of Connecticut-based Amaranth Advisers in September. Amaranth lost $6bn in a week as it placed disastrous bets that the price of natural gas would rise.

Amaranth was the biggest hedge fund failure since the demise of Long Term Capital Management, which haemorrhaged $4bn in five weeks during 1998.

Mr Cox has been anxious for greater power for some time. In July, he told the Senate banking committee that the present wealth threshold for investing in notoriously risky hedge funds was "not only out of date, but wholly inadequate to protect unsophisticated investors from the complex risks of investment in most hedge funds".

Most funds maintain that they only market themselves to sophisticated investors. Some have stringent investment criteria requiring stakes of at least $1m.

In Britain, the Financial Services Authority has been consulting over how hedge funds are regulated and has expressed unease about their potential to create a disorderly market.

The majority of hedge fund investors will still qualify under the SEC's higher wealth threshold. But there could be other changes. Investors are presently allowed to count the value of their home as part of their net worth - but there has been speculation that this will be excluded. Investors must also earn at least $200,000 a year - a level which could be raised.