Barclays is threatened with multi-million pound fines and its boss Jes Staley will suffer a significant pay cut after he broke rules to protect whistleblowers in an effort to defend a friend against "malicious smears".
The Financial Conduct Authority (FCA) and the Bank of England's Prudential Regulation Authority (PRA) have launched investigations into both Barclays and Mr Staley after it emerged he twice tried to identify the author of two anonymous letters sent last June that raised concerns about a senior banker that Mr Staley recently recruited.
The regulators' rules shield the identities of whistleblowers who request anonymity to encourage people to come forward with sensitive information.
The 60-year-old chief persisted with his unsuccessful efforts to unmask the whistleblower last year despite having been told by the bank after his first attempt that it was inappropriate to do so. He instructed the bank's security team to track down the whistleblower, which in turn enlisted the help of an unidentified US law enforcement agency.
As punishment for the extraordinary rule breaches, the lender's board said Mr Staley, an American who took home £4.2 million ($7.5m) last year, will suffer a "very significant" cut to his pay and will receive a formal written reprimand. The drop in his pay will be determined after the regulators finish their probe.
While Barclays chairman John McFarlane said Mr Staley, who has apologised for his actions, still had the "unanimous confidence" of the board, in the worst case the FCA could decide to ban the bank chief from financial services, which would mean he could no longer continue to lead Barclays.
The FCA and PRA can also impose fines on both Barclays and Mr Staley for the transgressions and force the bank to change its whistleblowing processes. In another blow to Barclays, it is understood that the Department of Financial Services in New York is also looking into the matter, which could lead to further action.
The Barclays board learnt of Mr Staley's pursuit of the whistleblower early this year and hired law firm Simmons & Simmons to undertake an independent review. The lawyers and board concluded that the chief executive "honestly, but mistakenly, believed that it was permissible" to identify the letters' author.
The financier who was the subject of the letters had "experienced personal difficulties in the past", Mr McFarlane said. It is understood the banker in question is Tim Main, who worked and befriended Mr Staley while they were colleagues at JP Morgan.
Mr Main was hired by Barclays last June, one of a host of former JP Morgan bankers to follow Mr Staley to the British lender to help him revive its fortunes since he took the helm late in 2015.
Mr McFarlane said Mr Staley wanted to track down the letter writer to "protect a colleague" who he believed had suffered an "unfair attack". In an email to staff today, the Barclays chief admitted he "got too personally involved" but insisted the whistleblower was seeking to "maliciously smear" their colleague.
The Barclays chairman said he was "personally very disappointed and apologetic that this situation has occurred", which serves to further tarnish Barclays' already battered reputation, John Mann, a Labour MP who sits on the Treasury Select Committee, urged Mr Staley to resign.