Mr Flowers was chair of Co-op Bank between 2010 and 2013, but was forced to step down amid allegations he bought and used illegal drugs, as well as claiming inappropriate expenses.
The Financial Conduct Authority said on Tuesday that Mr Flowers' conduct demonstrated a "lack of fitness and propriety" required to work in financial services.
Mark Steward, executive director of enforcement and market oversight said: "The role of chair occupies a unique place of trust and influence. The chair is pivotal in setting expectations of a company's culture, values and behaviours.
"Mr Flowers failed in his duty to lead by example and to meet the high standards of integrity and probity demanded by the role.
"These high standards are what the financial services industry and the wider community rightly expect of its senior individuals.
"Where a chair, or other senior individual, fails to discharge these standards the FCA will hold them to account."
The FCA found that Mr Flowers demonstrated an "unwillingness to comply" with its and other legal, regulatory and professional requirements and standards.
Its probe showed that Mr Flowers used his work mobile telephone to make "a number of inappropriate telephone calls to a premium rate chat line", in breach of Co-op Group and Co-op Bank policies.
In addition, he used his work email account to send and receive "sexually explicit and otherwise inappropriate messages, and to discuss illegal drugs", the FCA added, despite having been previously warned about his earlier misconduct.
Following the scandal, Mr Flowers was also removed from the list of Methodist Church ministers, stripped of the title reverend and the power to lead services for "seriously impairing the mission, witness or integrity of the Church".
In a damning statement, the watchdog said it believes Mr Flowers' disregard for the standards he is expected to meet demonstrates a "lack of integrity" and that any future involvement by Mr Flowers in the financial services industry risks "undermining consumer and market confidence".
John Glen, economic secretary to the Treasury, said: "We are committed to creating a stronger and safer banking system.
"A vital part of this is ensuring that our regulatory system can learn from past events.
"The launch of this independent review is a further demonstration of this commitment."