The changes would strengthen risk warnings on ads and ban incentives to invest, such as new joiner or refer-a-friend bonuses, the Financial Conduct Authority (FCA) said.
A surge in investment scams, particularly online since the coronavirus pandemic began in 2020, has prompted the regulator to take action, such as refusing one in five licence applications from consumer investment firms in the year ended March 2021.
"We are concerned that too many consumers are just ‘clicking through’ and accessing high‑risk investments without understanding the risks involved," the FCA said.
The planned rules cover high-risk investments such as cryptoassets, including cryptocurrencies such as Bitcoin, as well as crowdfunding, peer-to-peer agreements, mini-bonds and speculative illiquid securities.
The draft rules, put out to public consultation, also prepare the ground for the government to bring in promotions of cryptoassets under the watchdog's conduct remit for the first time following a finance ministry announced on Tuesday.
The FCA plans to categorise qualifying cryptoassets as 'Restricted Mass Market Investments,' meaning consumers would only be able to respond to cryptoasset financial promotions if they are classed as restricted, high net worth or sophisticated investors.
"Firms issuing such promotions would have to adhere to FCA rules, such as the requirement to be clear, fair and not misleading."
Under the proposed rules, firms that approve and publish promotions must have relevant experience and understanding of the investments being offered, the watchdog said.
"Those looking to make certain high-risk investments would also be asked more robust questions about their knowledge and investment experience, after research found many consumers were investing without being aware of the risks," it added.