Barclays on Monday confirmed it was under investigation along with its CEO Jes Staley over his attempts to uncover the identity of a whistleblower within the British financial giant.
It is the third controversy to hit the British bank's top ranks in less than five years, and follows massive fines for manipulation in forex trading and the setting of a key interest rate.
In a statement, Barclays said the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have "commenced investigations into Jes Staley, as to his senior manager responsibilities relating to Barclays whistleblowing programme, and Barclays Bank."
The board said it had accepted Staley's explanation that he didn't know he was not allowed to try and identify the author of a whistleblowing letter sent in 2016.
"The board has concluded, that Mr Staley honestly, but mistakenly, believed that it was permissible to identify the author of the letter," it said.
The bank vowed to "cooperate fully" with the FCA and PRA investigations and said that "a very significant compensation adjustment" will be made to Staley's pay packet this year.
According Barclays' annual report published early 2017, Staley's total remuneration for 2016 was £4.23 million ($5.24 million, 4.95 million euros), including an annual bonus of £1.32 million that looks set to be cut for 2017.
Staley said he had apologised to the Barclays board and accepted its findings.
"Our whistleblowing process is one of the most important means by which we protect our culture and values at Barclays and I certainly want to ensure that all colleagues, and others who may utilise it, understand the criticality which I attach to it," he said.
An anonymous letter was sent to board members last year raising concerns about a senior employee who had recently been recruited, including issues of a personal nature, the bank explained.
Staley requested that the bank's Group Information Security (GIS) team find who wrote the letter which he viewed as "an unfair personal attack on the senior employee."
The board found out about Staley's actions early this year and instructed an external law firm, Simmons & Simmons, to investigate, as well as informing the FCA and PRA.
"I am personally very disappointed and apologetic that this situation has occurred, particularly as we strive to operate to the highest possible ethical standards," said Chairman John McFarlane.
The British bank, which was hit hard by the financial crisis, appointed Staley, a former JP Morgan investment banker, as its chief executive in 2015.
The 60-year-old American declared on his appointment that he would seek to "preserve and enhance" trust in the lender, whose reputation was badly damaged by foreign exchange and Libor benchmark interest rate rigging scandals.
Staley's predecessor Antony Jenkins was sacked by the bank in July 2015 in the wake of the scandals.
Jenkins had been in the job since July 2012 when he replaced Bob Diamond -- who himself was forced to resign after the Libor rate-fixing scandal.
In May 2015, Barclays was hit with a $2.4-billion (2.2-billion-euro) fine by US and British regulators for manipulation of foreign exchange trading. Five other global banks have been fined over the affair.
Back in 2012, the bank was fined £290 million (401 million euros) by British and US regulators for attempted manipulation of Libor and Euribor interbank rates between 2005 and 2009.
In January, the bank announced a new round of job cuts, axing 1,200 positions at its investment banking division, exiting Russia and closing offices across Asia.
The job losses were the first round of cutbacks unveiled by Staley and followed a wave of 7,000 jobcuts which began in 2014.