The ECB have suspended Yorkshire from hosting international or major matches until it has demonstrated it can improve its standards expected of an international venue.
They were due to host an Ashes Test in 2023.
Ballance has also been suspended from being selected for England after admitting to using a racial slur against team-mate Rafiq.
The statement, released on Thursday evening, reads:
“The ECB Board today discussed the developments in relation to Yorkshire County Cricket Club (YCCC).
“It is clear to the Board that YCCC’s handling of the issues raised by Azeem Rafiq is wholly unacceptable and is causing serious damage to the reputation of the game. The ECB find this matter abhorrent and against the spirit of cricket and its values.
“There is no place for racism or any form of discrimination in cricket and where it is found, swift action must be taken. This matter must be dealt with robustly if the sport is to demonstrate its commitment to truly being a game for everyone.
“The ECB Board agreed:
“The ECB will therefore hold YCCC to account in relation to their handling of the matter. Given recent events, it is clear there are serious questions regarding the governance and management of YCCC. The club’s failure in relation to actions and responses to their own report represent a significant breach of its obligations to the game.
“As a governing body with duties to act for all in cricket, the ECB Board reaffirmed its commitment to taking decisions in the best interests of the whole game. It also agreed that sanctions including, but not limited to, financial and future major match allocations may be considered at the conclusion of our investigations.
“In the meantime, YCCC are suspended from hosting international or major matches until it has clearly demonstrated that it can meet the standards expected of an international venue, ECB member and First Class County.
“The ECB Board has asked the ECB Executive to commission a review of Yorkshire CCC’s governance to consider whether the existing arrangements are fit for purpose.
“That the regulatory processes already underway into the allegations brought by Azeem Rafiq will ultimately be determined by an independent tribunal (The Cricket Disciplinary Committee).
“Before any regulatory investigation is complete, the Board wishes to take immediate action in relation to Gary Ballance. While Mr Ballance has not been selected to play for England since 2017, he will be suspended indefinitely from selection. This position will be reviewed following the ECB regulatory investigation into his conduct.
“The Board reiterated its unwavering commitment to ensuring that cricket is a game for everyone. Discrimination of any kind on the field of play, in the dressing room, in the stands, or in the boardroom is intolerable in sport or indeed, society. Cricket must work together to eradicate it.”