London - Britain has stepped up its probe into rigging of the Libor interbank lending rate, making its first arrests in a scandal that has shaken faith in London's role at the heart of the global financial system.
Britain's Serious Fraud Office (SFO), which is responsible for investigating and prosecuting complex fraud cases, said three people had been held for questioning on Tuesday concerning manipulation of the rate used as a reference in lending across the world.
"Three men, aged 33, 41 and 47, have been arrested and taken to a London police station for interview in connection with the investigation into the manipulation of Libor," said the SFO in a statement.
The Financial Times on Wednesday named the men as Tom Hayes, a former trader who has worked in London and Tokyo and Terry Farr and Jim Gilmour, two employees of London-based interdealer broker RP Martin.
An SFO official said that it was the first time that arrests have been made as part of the probe into Libor, which is used in a vast number of global financial transactions totalling at least $300 trillion.
All three are British nationals, with two of the men arrested in Essex to the east of London and another held in Surrey to the south of the capital.
The SFO opened a probe into Libor manipulation in July after Barclays was fined £290m by US and UK regulators for attempted rigging of European interbank rates between 2005 and 2009.
The London Interbank Offered Rate, or Libor, is a flagship instrument used all over the world, affecting what banks, businesses and homeowners pay to borrow money. Euribor is the eurozone equivalent.
The Libor is calculated daily, using estimates from banks of their own interbank rates.
However, the system was been found to be open to abuse, with some traders lying about borrowing costs to boost their trading positions or make their bank seem more secure.
Barclays is the only bank to have been fined so far, but it is understood that about 20 banks globally are being investigated for possible Libor manipulation.
State-rescued Royal Bank of Scotland has already said that it hopes to settle any claims after warning that it could face significant financial penalties.
RBS, which is 81% owned by the government after a huge bailout, has dismissed a number of employees for misconduct as a result of its own investigations.
Back in October, the British government announced plans to make it a criminal offence to rig Libor, backing the findings of a major report into the scandal.
The Financial Services Authority (FSA) - the nation's finance regulator - had recommended in September that the Libor interest rate receive a "complete overhaul" in the wake of the notorious affair.
Industry body the British Bankers' Association will be stripped of its role in setting Libor, with the oversight process handed to a new group.
The coalition government has said that it will seek to change the law and introduce the Libor reforms as soon as possible.
The review also argued that the FSA needed powers to punish those who attempt to manipulate Libor.
The Barclays scandal sparked a raft of top-level resignations, including chief executive Bob Diamond and chairperson Marcus Agius, and sparked a bitter row over ethics in the wider banking sector.
Diamond was replaced by Antony Jenkins, who was formerly head of the group's retail and business banking.
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