The Financial Services Authority (FSA) said Harbinder Panesar misappropriated money from his business and sold worthless policies as the director of South Wales motor breakdown insurance firm Motorcare Elite.
An insurance broker has been banned from working in the industry and fined £212,000 after he left thousands of customers without the motor breakdown cover they paid for.
The FSA has moved to prevent Elite, based in Llantwit Major in the Vale of Glamorgan, from doing any more business and the company is currently in liquidation.
An investigation revealed that Panesar misappropriated more than £180,000 from Elite and another company he ran called Motorcare Warranties between August 2008 and December 2010.
The FSA said Panesar's "reckless operation" of Elite included him selling policies which fundamentally failed to meet customers' needs, sold policies that were outside the scope of cover offered by its underwriters, failed to report policies accurately to its underwriters and sold policies after Elite's deal with an underwriter had ended.
The failings meant that more than 6,000 customers were left without the motor breakdown insurance cover they had paid for.
Panesar had recently been discharged from bankruptcy, but his misconduct was so serious that the FSA would not be reducing the penalty and was prepared to put him into bankruptcy a second time should he be unable to pay, it said.
The FSA's director of enforcement and financial crime, Tracey McDermott, said: "Harbinder Panesar has left a trail of destruction behind him: misappropriating funds from his businesses, acting recklessly towards consumers, and taking two firms into liquidation. So egregious were his actions that even though he has only recently been discharged from bankruptcy, we will not reduce the fine because of financial hardship.
"Such dishonesty and recklessness not only posed a risk to consumers but also to other market participants and to confidence in the financial system as a whole. Panesar is learning the hard way that we will not stand for this kind of activity."
Customers of Elite who want to make a complaint should contact the Financial Services Compensation Scheme on 0800 678 1100 or 020 7741 4100.
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