The move would mark a change in tack by the Financial Conduct Authority (FCA), which has said it regulates the exchange and the futures derivatives market for commodities but not warehousing or the physical markets.
However, one of the two sources with knowledge of the matter said that as warehousing and the physical market had an important role in LME operations, the FCA would want to ensure the LME - the world's biggest marketplace for metals such as copper and aluminium - was meeting its regulatory obligations.
The LME, a venerable British institution acquired last year by Hong Kong Exchanges and Clearing, is a futures market that oversees a global network of warehouses where its clients should be able to take delivery of metals.
In practice industrial clients needing metal sometimes have to queue for up to a years while warehouse companies - increasingly owned by banks or trading houses - benefit from rents they charge during the wait or focus on using metal in finance deals rather than providing it to LME clients.
The queues have caused the price premium on some metals to surge, prompting accusations from manufacturing companies that banks and traders are artificially inflating prices and distorting supplies and demands for the LME to act.
In a sign of movement over the issue, Goldman Sachs Group Inc said on Wednesday it would offer customers of its Metro International metals warehouse business immediate access to aluminum held up in queues.
"In light of the concerns that end-users have raised about their access to aluminum they are holding in warehouses, Goldman Sachs is contacting end users to offer to swap any aluminum currently in the queue for immediately available aluminum so that they have access to the metal they need to make or package their products," the bank said in a statement
The first of the two sources said the FCA was in close contact with the LME and the U.S. Commodity Futures Trading Commission (CFTC), and while it was not presently investigating anything in particular at the LME, it had not ruled out such a process.
An LME spokeswoman declined to comment on any potential investigation, but said the exchange had always worked closely with the FCA and the CFTC.
The FCA said on Monday it was working closely with the LME on the exchanges's efforts to fix its warehousing system.
The CFTC has written to firms ordering them to preserve emails, documents and instant messages from the past three years, four sources who received letters said.
The notice amounted to a "warning shot" ahead of what is probably a formal CFTC probe, one source said. A second source said all firms with LME-registered wareshouses in all jurisdictions had received the letter.
The LME storage network extends across 36 locations and 14 countries. The LME itself does not own any of the warehouses.
If there is an investigation, it would be the first by a regulator into the lucrative and controversial industry which has become dominated since 2010 by banks also including JPMorgan Chase & Co and merchant traders like Glencore Xstrata Plc and Trafigura AG.
The European Commission spokesman for competition policy, Antoine Colombani, declined last week to comment on the CFTC's move or whether the European Union antitrust authority was cooperating with the CFTC. He was not immediately available to comment on Wednesday.
However, a source with knowledge of the matter said the Commission spoke to the LME in connection with the warehousing issue during the Glencore-Xstrata merger in November last year.
"The question is to what extent the build-up in delays at the warehouses is a competition issue. DG Comp (the directorate general of competition) talked to the LME regarding the issue during the Glencore, Xstrata merger and concluded there was no obvious way to intervene."
(Editing by Anthony Barker)
By Susan Thomas and Douwe Miedema