Panesar was the director of South Wales motor breakdown insurance firm, Motorcare Elite and his fine also takes account of his operation of Elite.
"The Financial Services Authority (FSA) today banned insurance broker, Harbinder Panesar, from working in the financial services industry and fined him 212,237 pound," the FSA said in a release.
An investigation by the FSA revealed that between August 2008 and December 2010 Panesar misappropriated over 180,000 pound from Elite and another insurance broker he previously ran, Motorcare Warranties Limited.
"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," FSA's director of enforcement and financial crime Tracey McDermott said.
The FSA has cancelled the permission of Elite, meaning it can no longer do authorised business. Elite is currently in 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," McDermott said.
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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, McDermott added.
Panesar allowed Elite to sell his product, 'Supreme Plus', which fundamentally failed to meet customers' needs, sell policies that were outside the scope of cover offered by its underwriters, fail to report policies accurately to its underwriters, and sell policies after Elite's deal with an underwriter had ended.
All of these meant that over 6,000 customers were left without the motor breakdown insurance cover they had paid for, FSA said.