In a ruling effective from 31st January, the regulator has stated that the company 'must cease to communicate any further financial promotions that have not received prior approval' from Shepherds Friendly, who provide insurance for Dead Happy.
The ad, which featured an image of serial killer Harold Shipman, caused considerable backlash, including from relatives of his victims.
The Advertising Standards Agency has also said it is reviewing complaints about the advert.
Dead Happy founder Andy Knott said of the ruling:
"In our attempt to be provocative and make people really stop and think about their need for life insurance, we have made a mistake and for this we apologise.
"We will now go away and immediately review all of our current and future marketing campaigns to ensure we learn from this mistake."
A Shepherds Friendly spokesperson said:
"Upon being made aware of the advert distributed on social media on 23 January featuring Harold Shipman, we immediately expressed our view to DeadHappy that it was distasteful and inappropriate and asked them to remove it.
"We are committed to our values and this does not align with them.
"Following the FCA's restriction on DeadHappy's activities, we are ensuring those requirements are complied with.
"In addition we have given our feedback to DeadHappy regarding our expectations of their conduct in the future."
