Schemes that pay people mainly for bringing in other people, rather than for selling a real product, have a long history. This guide explains how the Financial Conduct Authority (FCA) describes Ponzi and pyramid schemes, what the Digital Markets, Competition and Consumers Act 2024 says about pyramid promotional schemes, how the advertising regulator distinguishes them from multi-level marketing, and where to report one. It is general information, not legal advice.
How the FCA describes the two most common schemes
The FCA says get-rich-quick schemes promise investors high returns not usually available through traditional investments. It says early investors may make money while people who invest later usually lose theirs. Its two most common examples are:
- Ponzi schemes. Named after Charles Ponzi, who guaranteed a 50% return to investors in the US in the 1920s. Most of the money he received was used to pay dividends to early investors, and the scheme collapsed when he could not attract more money to pay later investors.
- Pyramid schemes. These work in a similar way, but investors are encouraged to recruit more people and are paid commission when they do. The FCA notes they are also called franchise fraud, multi-level marketing or a chain referral scheme.
The FCA explains that such schemes seem genuine and profitable to early investors, which encourages them to attract more people and money, but they collapse when the supply of new investors and money ends. Investors usually find most or all of their money is gone and that those who set up the scheme took most of it. The regulator adds that these schemes often target community, religious, ethnic, older or professional groups, and that leaders within a group may be targeted first, receive a high return and promote the scheme to others before it collapses.
What the 2024 Act says about pyramid schemes
The Digital Markets, Competition and Consumers Act 2024 lists commercial practices that are in all circumstances unfair to consumers in Schedule 20. Paragraph 16 covers establishing, operating or promoting a pyramid promotional scheme. It defines a pyramid promotional scheme as a scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme, rather than from the supply or consumption of products. Legislation.gov.uk records that this paragraph came into force on 6 April 2025. The paragraph is marked as applying UK-wide.
How the ASA treats pyramid schemes and multi-level marketing
The Committee of Advertising Practice, which writes the UK advertising codes, says in guidance dated June 2025 that a pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people, without any product or service being delivered, and that it understands pyramid schemes are illegal in the UK. Rule 3.16 of the code says no marketing communication may promote a pyramid promotional scheme. The Advertising Standards Authority has upheld complaints about purported home working schemes, including envelope filling and posting links online, where consumers paid a fee for the chance to receive money derived primarily from introducing other consumers.
The same guidance says multi-level marketing is not considered a pyramid scheme, because participants also earn commission from recruiting but the scheme offers a legitimate product or service. That distinction is made in the advertising guidance and is not a finding about any particular company, so it is worth applying to each offer: what is actually being sold, and where does the participant’s income come from?
Questions worth asking about an offer
- Is money paid mainly for the chance to recruit others, or for products that customers actually buy and use?
- Are returns described as guaranteed or unusually high? The FCA advises wariness of promised returns that sound too good to be true.
- Did the offer arrive out of the blue, or come with pressure to act quickly? The FCA says to be wary in both cases.
- Is the business a financial services firm? The FCA says to deal only with firms it authorises, which can be checked on the FCA Firm Checker, and that its Warning List names firms to avoid.
If money has been lost
The FCA says anyone worried about a possible scam should report it to the FCA on 0800 111 6768 or through its contact form, and that anyone who has lost money should also report it to Report Fraud. It warns that fraudsters may target victims again, or sell their details, with follow-up scams such as an offer to get money back or buy back the investment for a fee.
Citizens Advice, in advice for England, says a business can be reported to Trading Standards through the Citizens Advice consumer service, which passes the report on. Trading Standards can take businesses to court or stop them operating, but it will not help a person recover their money.
Frequently asked questions
Is multi-level marketing the same as a pyramid scheme?
The ASA and CAP guidance says no, on the basis that multi-level marketing involves a legitimate product or service. The FCA, however, lists multi-level marketing among the names sometimes used for pyramid schemes, so each offer needs to be judged on how it works.
The bottom line
A scheme that rewards people mainly for recruiting others, rather than for supplying products, is the pattern that the 2024 Act treats as an unfair commercial practice and the FCA warns collapses when recruitment slows. Anyone approached should check what is genuinely being sold, avoid pressure and promised returns, and report suspicious schemes to the FCA, Report Fraud or Trading Standards through Citizens Advice.