The Financial Services Authority (FSA) has warned car drivers they may have bought illegal car insurance from a firm called Double Easy Brokers.
Car drivers should replace Double Easy policies immediately says FSA
The company, which traded on the internet as Eeasybrokers, was not authorised by the FSA to sell insurance and its policies were fictitious.
The FSA said anyone who bought a policy should buy new cover immediately as it is a crime to drive uninsured.
Double Easy Brokers claimed falsely to be associated with Zurich Insurance.
A spokeswoman for the FSA said that Double Easy Brokers had now closed down but had been "an illegal operation, a complete scam".
The fraudulent firm's website at eeasybrokers.co.uk has now been suspended. The FSA said the site was designed to give the false impression that the business was linked to the easymoney.com financial services group run by the businessman Sir Stelios Haji-Iaonnou.
There is a separate website at eeasybrokers.com, but this is a US operation that is not linked to the regulator's warning.
Both Sir Stelios and Zurich Insurance, one of the world's largest insurance groups, tipped off the FSA about the fraud.
The people behind it appeared to have two offices, one in London and another in Southampton, the FSA said.
It is thought that a number of policies have been sold during the past couple of months in Cardiff, Leeds and Southampton, but others might also have been sold by other brokers or financial advisers.
The FSA said that anyone worried about their insurance cover should contact its consumer helpline on 0845 606 1234.
But the regulator pointed out that as the firm was not authorised, customers would not be able to claim compensation under the Financial Services Compensation Scheme or the Financial Ombudsman Service.