The European Commission (EC) has recommended passing a law so that fixing interest rates connected to Libor, Euribor and other rate-swapping indexes becomes a criminal offence.
The EC has called on European Union states to pass laws so that manipulation of interbank rates becomes a criminal offence.
Presenting the recommendations, Viviane Reding, Vice President of the EC said: “Manipulation of these so-called "benchmarks" will be clearly prohibited by today's proposals, and be made a criminal offence.
"We want to close any regulatory loopholes. There must be zero tolerance for manipulators in the EU financial markets.”
Manipulating the rates will be added as a criminal offence, along with insider dealing, said Ms Reding, who went on to criticise the Bank of England for not being aware of Libor fixing when it went on in 2007 and 2008.
UK regulators welcomed the decision and said that it will pass on details of its own investigation into the fixing of interbank rates to the EC.
Ms Reding said she wants to "put an end to criminal activity in the banking sector".
"Public confidence has taken a nosedive with the latest scandals about serious manipulations of lending rates by banks.
"This is why we are today proposing EU-wide rules to tackle this type of market abuse and close any regulatory loopholes.
"A swift agreement on these proposals will help restore much needed confidence of the public and investors in this crucial sector of the economy."
In total, 15 financial institutions are being investigated over rate-fixing. They are: Deutsche Bank, HSBC, ICAP, JP Morgan Chase, Bank of Tokyo-Mitsubishi UFJ, Citigroup, Credit Suisse, Lloyds Banking Group, Mizuho Financial Group, Rabobank, Royal Bank of Scotland, RP Martin Holdings, Societe Generale, Sumitomo Mitsui Banking and UBS.