The Serious Fraud Office has launched a criminal investigation into allegations London bankers rigged key foreign exchange benchmarks for profit, the agency announced today.

Traders found guilty of illegally manipulating the $5.3 trillion-a-day currency market could face jail and the banking institutions for which they work could also face prosecution.

America’s Department of Justice announced its own probe into alleged manipulation of the $5.3trillion a day foreign exchange market last October. At the same time the Financial Conduct Authority, Britain’s principal financial regulator, launched an investigation. Market watchdogs in Europe and Asia are also involved. The SFO is understood to have been gathering information for several months before formally launching its investigation.

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Sources at the SFO said they are working closely with other agencies, both in the UK and abroad, although they stressed the decision on whether to bring criminal charges would not depend on the outcome of parallel investigations.

Earlier this year the Bank of England became embroiled in the forex affair after traders alleged Threadneedle Street officials had been made aware of their practices at a host of market intelligence gathering meetings in high-end London restaurants. The Bank has denied it colluded or sanctioned manipulation, but in March the Bank suspended an official for failing to follow information escalation guidelines and its ruling Court appointed Lord Grabiner QC to look into the claims.

The Royal Bank of Scotland’s chief executive Ross McEwan said last week that the costs of the forex affair for the banking industry could ultimately surpass those resulting from the Libor rate-rigging scandal. “Unfortunately, I have the feeling that this is a sort of Libor case again” Mr McEwan said. “The difference is that we haven’t sat back and denied it. We’ve gone into it and are doing the investigation hand-in-hand with the authorities”. RBS was fined £35m for Libor abuses. In total banks around the world have paid out more than $6.5bn in fines relating to the affair.

The SFO did not release details on the specific forex manipulation allegations under investigation but the US Department of Justice is examining whether traders from different banks colluded to share information on the spread they were charging large investors and whether they were making trades before booking orders from clients moved markets, a practice known as “front-running”.

Around three dozen traders from 10 multinational banks have so far been placed on leave or sacked over alleged forex manipulation.

The foreign exchange market has a daily turnover volume of around $5.3 trillion and the City of London has 40 per cent share of the world’s currency trading.