Three men were arrested on Tuesday in connection with an investigation into the rigging of the interbank lending rate Libor, the Serious Fraud Office (SFO) said.

The British nationals - aged 33, 41 and 47 - have been taken to a London police station following searches at a property in Surrey and two premises in Essex.

The SFO opened its investigation into Libor manipulation in July after Barclays was fined £290 million by US and UK regulators for rigging the key lending rate which affects mortgages and loans. Other banks are also subject to investigation.

At the height of the banking scandal this summer, the SFO revealed it had been working closely with the Financial Services Authority (FSA).

The government department, which is responsible for investigating and prosecuting serious and complex fraud, launched an inquiry into the entire banking sector.

It came after a number of traders at Barclays were found to have rigged Libor to boost profits and bonus rewards, while the bank was also accused of lowering submissions in a bid to alter the perception of the lender's finances.

The claims ultimately led to the resignation of Barclays boss Bob Diamond, sparked a criminal investigation and became the focal point of a bitter row in Westminster over ethics in the banking sector.

The arrests follow speculation that Swiss banking giant UBS has started settlement talks with regulators over alleged Libor rigging.

UBS is reportedly on course to reach an agreement before Christmas and is facing a fine of more than 450 million US dollars (£280 million).

Around 20 financial institutions have been investigated over the alleged rigging of benchmark interest rates which govern 500 trillion US dollars of contracts worldwide, ranging from household mortgages to complex derivatives products.

Taxpayer-backed Royal Bank of Scotland has previously said it hopes to settle any claims over Libor manipulation soon and warned that potential penalties could be significant.

Focus on the banking sector has intensified once again as HSBC revealed a 1.9 billion US dollar (£1.2 billion) settlement for failing to comply with anti-money laundering rules and Standard Chartered paid out an additional 327 million US dollars (£203 million) over allegations that it breached sanctions with Iran.

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