THREE men have been arrested in connection with an investigation into the rigging of 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 mil-lion by US and UK regulators for rigging the key lending rate which affects mortgages and loans. Other banks are also under investigation.

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

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 arrests follow speculation that Swiss banking giant UBS has started settlement talks with regulators over alleged Libor rigging. It is reportedly on course to reach an agreement before Christmas and is facing a fine of more than £280m.

Around 20 financial institutions have been investigated over the alleged rigging of rates which govern $500 trillion 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 soon and warned that potential penalties could be significant.