Parents who regularly look after their friends' children must register as childminders, Ofsted said as two policewomen were warned off caring for each other's youngsters.
The regulator stressed that people who baby-sit for one another's children for more than two hours at a time or on more than 14 days per year should be registered.
This applies where parents receive a "reward" for the childcare - which can include money or simply free baby-sitting in return.
According to the Mail on Sunday, Detective Constable Leanne Shepherd from Milton Keynes was warned by Ofsted to end a reciprocal arrangement with her friend DC Lucy Jarrett.
She told the newspaper: "When the Ofsted inspector turned up, the first thing she said was 'I have had a report that you're running an illegal childminding business'.
"I straightaway thought she must be mistaken, so invited her into my home to explain we were police officers and best friends helping each other out.
"But she told me I was breaking the law and must end the arrangement with Lucy immediately. I was stunned, completely devastated. I spent the whole day crying because I couldn't see how I could continue working."
The Thames Valley officer is believed to have been reported by a neighbour, the newspaper said.
A petition to scrap the rules governing reciprocal child care on the Number 10 website has gathered more than 2,000 signatures.
An Ofsted spokesman said: "Ofsted applies the regulations for the registration of childcare as found in the 2006 Childcare Act. We are currently discussing with the DCSF (Department for Children, Schools and Families) the interpretation of the word 'reward' in the legislation to establish if we might be able to make a change."