A criminal investigation has been launched into alleged rigging of the Libor rate within the banking industry, the Serious Fraud Office (SFO) confirmed today.
SFO director David Green QC formally accepted the Libor issue for investigation after Barclays was fined by the Financial Services Authority (FSA) last week for manipulating the key interbank lending rate which affects mortgages and loans.
The claims ultimately led to the resignation of Barclays boss Bob Diamond and have become the focal point of a fierce political debate over ethics in the banking sector.
The investigation could ultimately lead to criminal prosecutions and bankers facing charges in court.
The SFO's update came after it revealed earlier this week that it had been working closely with the FSA during its investigation and would consider the potential for criminal prosecutions.
The Government department, which is responsible for investigating and prosecuting serious and complex fraud, said on Monday the issues surrounding Libor were "complex" and that assessing the evidence would take time.
As the SFO prepares its investigation, Labour leader Ed Miliband continued to push for an independent inquiry into the banking scandal despite MPs rejecting the demands.
The Labour leader said that while the party would cooperate with a parliamentary investigation, its remit was too "narrow" and a judge-led probe was still needed.
Mr Miliband also defended the conduct of Ed Balls after the shadow chancellor engaged in a bitter war of words with his opposite number George Osborne in the Commons.
It followed an interview with the Spectator where Mr Osborne said former prime minister Gordon Brown's inner circle had "questions to answer" over apparent pressure on Barclays to post lower Libor rates during the credit crunch.
Bank of England deputy governor Paul Tucker and Barclays chairman Marcus Agius, who announced his intention to resign after a replacement for Mr Diamond is found, will give evidence on the rate-rigging scandal to the Treasury Select Committee next week.
Mr Tucker was dragged into the affair by Mr Diamond, who revealed a record of a conversation they had in October 2008 in which the deputy governor relayed concerns in Whitehall about Barclays' high Libor rates.
The American banker said Mr Tucker was trying to warn him that "there are ministers in Whitehall who are hearing that Barclays is always high, that could lead to the impression that you are not funding yourself".
Barclays was dealt another blow yesterday as agencies Moody's and Standard & Poor's downgraded their outlook for the bank's credit rating in the wake of Mr Diamond's departure.
The agencies said the departure of Mr Diamond, as well as Mr Agius and chief operating officer Jerry del Missier, could lead to the break-up of its powerhouse investment arm.
Mr Diamond admitted feeling "physically ill" when he discovered traders had fiddled the key rate but denied he was "personally culpable" for their actions.
He blamed a "series of unfortunate events" for his shock departure as he fended off calls to give up his multimillion-pound bonuses.
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