The card and identity protection group CPP has claimed the Financial Services of Authority could put it out of business after the City regulator demanded a massive review of past sales to identify how much mis-selling went on.
It ordered the suspension of trading in its shares yesterday.
CPP has been accused of heavy-handed selling tactics, particularly when it came to describing the potential risks of identity theft.
The regulator said: "The FSA has serious concerns about the manner in which customers were being sold identity theft and card protection policies by the firm. In March 2011 CPP stopped selling identity protection products to new customers and has since also amended its sales scripts for the card protection product.
"Now, as part of the FSA's ongoing investigation, it is likely that the firm will be required to carry out a past business review of the direct sales it made for both products and, if appropriate, pay redress.
"We are in discussions with the firm about the scope of such an exercise."
CPP has 4.5 million UK customers and does not deny that some of its customers were mis-sold either card protection, which costs around £30 a year, or identity protection at £80 a year. The company first said it was under investigation by the FSA in March 2010.
Paul Stobart, the chief executive, said: "The business review which the FSA is calling for is disproportionate. So much so that it threatens the viability of the whole business. That means not just our shareholders but also more than 1,300 who work for us in the UK."
He declined to say what percentage of its 4.5 million customers the FSA had asked it to go back and review.
CPP received a phone call and then a follow-up letter from Georgina Philippou, the head of retail enforcement at the regulator, on Friday evening.
CPP shares were suspended at 103p. Before the FSA investigation was revealed last year they stood at 310p.
Mr Stobart did not deny that mis-selling had taken place in the past.
He said: "We are deeply apologetic to those customers who were mis-sold and will compensate them. We have also acknowledged that a past business review is appropriate, but the scale the FSA has asked for is not appropriate. It would be hugely costly and at the same time the longer this goes on the more difficult it is for our business partners."