Barclays CEO fined $1.5 mln for trying to unmask whistleblower

* UK regulators fine Staley a combined 642,000 pounds

* First (Other OTC: FSTC - news) fine for a major sitting bank CEO

* Barclays (LSE: BARC.L - news) imposes 500,000 pound cut to Staley's 2016 pay

* Outcome raises concerns for future whistleblowers-lawyers (Adds reaction from lawyers, lawmakers)

By Lawrence White and Huw Jones

LONDON, May 11 (Reuters) - British regulators and Barclays (Swiss: BARC.SW - news) have fined the bank's Chief Executive Jes Staley a combined 1.1 million pounds ($1.5 million) after he tried to identify a whistleblower who sent letters criticising an employee of the bank.

The Financial Conduct Authority (FCA) and the Bank of England's Prudential Regulation Authority said on Friday they had together fined Staley 642,000 pounds. That included a 30 percent discount for him agreeing at an early stage to settle.

Barclays imposed a 500,000 pound cut to his 2016 pay.

The regulatory fine is the first ever such penalty for the sitting CEO of a major bank in Britain, and cast a pall over Staley's efforts to show the bank has improved its culture since the freewheeling days of before the 2007-8 financial crisis.

"Mr Staley's actions fell short of the standard of due skill, care and diligence expected of a CEO in a regulated firm," the FCA said.

Regulators said the fine was only 10 percent of his overall pay package. Staley, a 61-year old American and former JPMorgan (LSE: JPIU.L - news) banker who took the helm at Barclays in December 2015, at one stage appeared at risk of losing his job over the probe.

"I have consistently acknowledged that my personal involvement in this matter was inappropriate, and I have apologised for mistakes which I made," Staley said in the bank's statement on Friday.

The regulatory findings will also be closely read by lawmakers keen to ensure top banking officials are held accountable for their actions at a time when there are growing calls to better protect whistleblowers.

"I think it is sending entirely the wrong message, especially given that this is the person who is responsible for setting the tone at the top," said Mary Inman, a partner specialising in whistleblowers at law firm Constantine Cannon.

Lawmakers on Friday criticised Staley, and said they would ask the FCA at a hearing why it believes the fines are appropriate as opposed to a harsher sanction.

"A CEO should set an example to the firm’s employees. Clearly Mr Staley has failed in this regard," said Nicky Morgan, chair of the influential cross-party treasury committee on finance.

The regulators stopped short of saying Staley was unfit to continue in his role, after he twice attempted to find out who wrote letters raising "concerns of a personal nature" about an unidentified senior employee.

"Mr Staley acted unreasonably in proceeding in this way and, in doing so, risked undermining confidence in Barclays’ whistleblowing policy and the protections it afforded to whistleblowers," the FCA said.

VIDEO FOOTAGE

Tracking down the whistleblower became a transatlantic effort, the regulators' report showed.

A copy of the envelope of the first letter was sent by Staley's office via group security to a Barclays employee in the United States "who engaged with their contacts in the U.S. to try and identify the author".

These "contacts" provided the date, time, location and cost of buying postage for the first letter.

Group security then made a fruitless attempt to obtain "video footage" of the person who bought postage for the first letter, the report said.

It was the regulators' first case brought under Britain's new senior managers regime (SMR), a post financial crisis reform aimed at making top staff directly accountable for their actions.

"For Barclays employees the positive is the extent to which Staley has put his hand up and acknowledged fault, but it equally raises concerns about the lengths to which the bank was willing to go to and how more junior staff would have been treated in the same circumstances," said Alexandra Carn, a financial services employment lawyer at Edwin Coe in London.

Barclays is subject to the first ever requirements to tell regulators annually about any whistleblowing cases made against senior managers, and any cases where Barclays has sought to identify anonymous whistleblowers.

The bank's "whistleblowers' champions", who come under the SMR, will also have to attest personally each year on the soundness of Barclays' whistleblowing systems.

"Having loads of policies and procedures around whistleblowing is only as good as an organisation's desire to adhere to them, otherwise they are just paper," said Carn.

Barclays said in April last year it had reprimanded Staley and would cut his bonus as the two financial watchdogs launched a year-long investigation into his actions.

Authorities in the United States are still investigating the case.

Barclays shares were flat on Friday

($1 = 0.7381 pounds) (Reporting by Lawrence White and Huw Jones; additional reporting by Emma Rumney and Kirstin Ridley, Editing by Mark Potter)