The insurer cancelled around 4,550 car insurance policies after an internal error gave customers inaccurate quotes and left some undercharged for their cover.
The error occurred on two occasions last year.
The FSA said yesterday that Hastings had failed to treat customers fairly by cancelling the policies, and it failed to consider other possible remedies.
In cancelling, it forced customers to seek new policies, in some cases depriving them of the no-claims discount they had built up during the period insured.
Initially Hastings paid compensation for stress and inconvenience only if customers complained.