Exams regulator Ofqual identified a major problem that may have led to this summer's English GCSE grading crisis three years ago but failed to act, it has emerged.

Ofqual has admitted there are questions about how grade boundaries were set in a small number of English units over the year. It said it was investigating the issue and is due to publish an initial report on Friday.

The watchdog highlighted concerns that modular GCSEs created particular risks in maintaining standards because they allowed pupils to "bank" grades early. The Times Education Supplement reported that Ofqual came up with a workable solution that might have avoided the row that has erupted since last week but decided not to implement it.

Headteachers have claimed that tens of thousands of teenagers could have been adversely affected by grade boundary changes in GCSE English and there have been calls for the exams to be regraded.

National GCSE results for all subjects in England, Wales and Northern Ireland, published last week, revealed 69.4% of exams were given at least a C grade, down 0.4 percentage points on last summer.

It is the first time the A*-C pass rate has fallen in the 24-year history of GCSEs.

Angry headteachers claimed that exam boards had raised grade boundaries in English halfway through the year amid fears that too many children were going to get a C.

The TES reported that former Ofqual chief regulator, Isabel Nisbet, raised the problem in October 2009 when modular GCSEs were first introduced. She said that grading of individual modules could mean that when it came to the overall grade "the outcome is automatic", adding: "The machine goes ping and out pops the candidate's results. There is no discretion."

As a solution she proposed banning pupils from "banking" grades from modules towards final results. Marks from modules could stand but the grades awarded would remain provisional until the overall mark for the qualification had been finalised.

Nisbet, who left the regulator in 2011, did recognise downsides to her solution. Pupils might feel cheated if provisional grades were changed and it might encourage "game-playing" among schools over when was a good time to cash in modules.

She revealed that Ofqual had rejected an alternative strategy of allowing the modification or "hyper-correction" of a final module as an adjustment mechanism to the overall result.

But some fear that something similar may have happened this year as Ofqual and exam boards sought to ensure the summer's grades remained comparable with previous years, the TES said.

An Ofqual spokesman said: "The idea was put forward for discussion by the wider education community and was not a formal proposal.

"It is an idea that has advantages and disadvantages. The main disadvantage is that schools would not have certainty when tracking their students' performance.

"We are currently looking at the concerns that have been raised about some units in GCSE English this summer, and this may be one idea that could be revisited as part of that process."