Eight European banks have been fined a total of €1.7 billion after the European Commission found that they had been participating in illegal cartels to fix the multi-trillion euro market of financial derivatives.

The latest rate-fixing scandal, which involved a string of Europe's biggest high street and investment banks including Barclays, RBS, Deutsche Bank and Societe Generale, comes just over a year after a handful of banks were fined for manipulating the inter-bank lending rate that determines interest rates.

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US institutions JP Morgan and Citibank, the Swiss-based UBS, and the brokers RP Martin, were the other institutions involved.

The estimated 2 million derivative contracts across the the world have a combined notional value of €10 trillion worldwide.

Derivative contracts work as an insurance mechanism against volatile interest rate changes and derive their value from financial benchmarks.

However, both Barclays and UBS will avoid paying fines of €2.5 billion and €690 million respectively after helping with the investigation.

EU competition boss Joaquin Almunia said that banks had rigged the Euribor benchmark and had exchanged information on how to fix the market. He added that the fines were the highest amount levied under the EU's anti-trust rules.

The case marks the first time that the EU has imposed fines for market fixing, although national regulators in the US and Britain have already fined banks.

Speaking on Wednesday (4 December), Almunia said that he had been "appalled" by the evidence put together in the investigation, including emails between executives.

"What is shocking… is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other," he said.

Four of the banks had formed cartels to rig interest rate derivatives denominated in euros, while a further six institutions had manipulated derivatives denominated in Japanese yen.

But the fines do not bring the case to a close.

Almunia confirmed that the commission was also investigating the possible manipulation of the Swiss franc market.

He added that HSBC, Credit Agricole and JP Morgan - for a separate transgression - and one broker had refused to agree a financial settlement with the EU executive and faced further sanctions.

The Spanish commissioner said that the rate-rigging cases had changed his perception of financial markets.

"Many financial institutions have demonstrated a lot of wrong-doing," he said.

Meanwhile, MEPs and ministers are currently drawing up legislation to regulate the opaque system of creating the financial 'benchmarks' that form the basis of markets.