In September, CNNMoney uncovered half a dozen former Wells Fargo workers who say they were fired after calling the bank's confidential ethics hotline over improper sales activity.
Wells Fargo will be barred from opening worldwide branches and buying non-bank companies until it satisfies the regulators.
Lender Wells Fargo has been slapped with restrictions on growing its business by United States authorities after failing a key "living will" test.
But Wells Fargo, which has almost $2 trillion in assets, failed the test again.
The banks are required to submit those plans to the FDIC and the Federal Reserve, and according to those two entities, Wells Fargo's plan is not sufficient.
Wells Fargo is one of eight leading banks that must outline how they would be unwound in an orderly way in bankruptcy. The government exercise is aimed at avoiding a repeat of the taxpayer bailouts of "too-big-to-fail" banks during the 2008 financial crisis.
The allegations were detailed in a lawsuit filed last week by three Prudential employees who said the Newark, N.J. -based insurer, one of the largest in the US, retaliated against them because they refused to help cover up complaints about the term-life policies, which were to have been sold at special kiosks in the banks or online.
Tuesday's rejection is Wells Fargo's latest blow in a hard year.
Wells Fargo & Co.is under investigation by regulators in California and New Jersey to determine whether the bank signed up customers for Prudential Financial Inc. life policies without their permission. The bank is facing several federal and state investigations after employees opened more than 2 million accounts for customers without their approval.
Wells Fargo has embroiled in a sales scandal that involved opening millions of fraudulent accounts that customers didn't want.
"We believe we will be able to address the concerns raised today in the March 2017 revised submission", Wells Fargo said in a statement.
The restrictions on Wells Fargo will remain in place until the deficiencies are corrected, the regulators said.
Wells Fargo may submit an amended living will by March 31.
Wells Fargo said it is "deeply concerned about these allegations as they are completely counter to our values".
Regulators signaled that Wells Fargo's securities and investment banking unit is an area of concern and they threatened to cap its size if Wells can not right itself. "While we are disappointed with the determination issued by the agencies, we continue to be dedicated to sound resolution planning and preparedness", it further said.