THE UK's main anti-fraud agency has launched the first criminal investigation into alleged rigging of the £3 trillion-a-day foreign exchange markets at leading banks.

The Serious Fraud Office (SFO), which is responsible for investigating and prosecuting serious and complex fraud cases, will consider whether traders benefited from the manipulation of benchmark Forex prices.

The investigation, which was confirmed yesterday, will look into allegations of "fraudulent conduct", said the SFO.

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It raises the spectre of jail sentences for those found guilty while the banks they worked for, including Royal Bank of Scotland, could also face prosecution over their behaviour.

Several investment banks, including RBS, Barclays and HSBC, have already suspended currency traders due to an investigation launched last year by the Financial Conduct Authority.

While RBS was not commenting on the development, the bank's chief executive Ross McEwan warned on Friday that Forex rigging could erupt into a bigger scandal than the Libor interest rate rigging-scandal or the payment protection insurance controversy.

The Edinburgh-based bank was hit with £390 million in penalties for its role in the manipulation of Libor - the benchmark rate that some of the world's leading banks charge each other for short-term loans - amid a series of hefty fines levied on banking giants.

In total, banks around the world have paid out more than £3.8 billion in fines relating to the affair.

RBS also set aside £3.1bn to cover the cost of compensating clients sold payment protection insurance they did not need.

Mr McEwan admitted the early signs suggest foreign exchange fixing allegations could prove equally damaging.

"Unfortunately it has the hallmarks," he said. "We are still doing a lot of investigation. We are going through millions and millions of e-mails, chatrooms, conversations to see what actually went wrong, if anything, in this area.Unfortunately, I have the feeling this is a sort of Libor case again. The difference this time is we have not sat back and denied it. We have gone into it and are doing the investigation hand- in-hand with the authorities."

The criminal inquiry into alleged currency markets rigging in London, home to more than 40 per cent of the world's foreign exchange trading, will join worldwide investigation into foreign exchange market abuse by watchdogs across Europe, America and Asia.

In February, RBS suspended a third senior City currency trader over a global investigation into allegations of exchange rate rigging. Ian Drysdale had been put on leave before being suspended for four months after similar moves involving colleagues Julian Munson and Paul Nash.

The inquiry into online communications between traders and allegations of manipulating benchmark currency rates, also known as "fixings", has seen more than 20 traders at many of the world's biggest banks put on leave, suspended or fired.

Regulators have been looking into whether currency traders shared information about their positions and knowledge of client orders through instant messages to rig the foreign exchange market in their favour.

Benchmark currency fixings are a cornerstone of global financial markets, used to price trillions of dollars of investments and deals and relied upon by companies, investors and central banks.

RBS has lurched from crisis to crisis since its collapse in 2008, when it was bailed out by the UK Government, which has an 80 per cent stake in the institution as a result.

Since 2008, it has shed thousands of jobs and a programme of branch closures is continuing. While 60 of its branches closed last year, it announced in April it was selling 300. Overall, it has about 1900 branches and has warned it is "inevitable" more will go.

Earlier this year, a £5bn cost-cutting plan was unveiled. The bank employs almost 120,000 people, including 12,000 in Scotland.