Update from Czech Republic: spotlight on foreign currency exchanges

New rules for the provision of exchange services in the Czech Republic were introduced on 1 April 2019. These rules aim to strengthen consumer protection, and to prevent the abusive practices of foreign exchange offices, particularly those which operate in Prague's historical centre.

The need for greater regulation was highlighted by an increasing number of tourists visiting the Czech Republic. According to the Czech Statistical Office, 21 million foreign tourists visited the country in 2018, 550 000 more than the previous year. The highest number of tourists came from Germany, Slovakia and Poland. The most significant rise in the number of tourists is represented by Chinese tourists, where the number rose by 26.5% to 620 000 in comparison with 2017.

New customer rights

In relation to the right to withdraw:

• a client of a currency exchange office who has deposited an amount not exceeding EUR 1000 for exchange, may withdraw from an exchange trade agreement (entered into between him/her and the exchange office) within three hours following the transaction
• in relation to transactions executed via currency exchange machines, the period for withdrawal is three business days, and withdrawal may also be effected by way of notice sent by surface mail
• an even longer withdrawal period of six months will apply in circumstances where the exchange office creates obstacles for a client wishing to exercise his rights (eg if its employees refuse to communicate with him)
• a right of withdrawal may also be exercised by a client in relation to ancillary services provided by the exchange office (eg the selling of souvenirs or tourist maps).

If a client withdraws from an exchange trade agreement, either of the following must happen:

• the currency exchange office will cancel the trade entirely
• (if monies have already been parted with) the currency exchange office will pay the difference between the amount originally deposited by the client converted by the Czech National Bank rate published on the day before the exchange happened, and the amount that was actually given to the client

In relation to fees and information, fees may be charged by exchange offices only for the exchange of coins, cheques or if a client pays with a debit or credit card. However, an obligation to provide pre-contractual information to the client is no longer in place for deposits below EUR 1000.

The Dynamic Currency Conversion (ie the withdrawal of Czech korunas from a bank account denominated in a foreign currency from an ATM machine) is not considered a provision of exchange services, so the above described regulations do not apply.

The impact on banking business

Generally, the banks providing foreign currency exchange services – such as Unicredit and Moneta Money Bank – have adapted their IT and administrative processes to the new legislation and, for now, continue as usual.

However, as a result of the administrative costs connected with implementing the above regulation, two major banks providing services in the Czech Republic – ČSOB and Raiffeisenbank – have now stopped providing foreign exchange services at their offices. The second reason for their decision may also relate to a decline in demand, as more and more customers and/or tourists use ATM machines for these purposes.

To sum up, there has been little reaction from Czech banks to date, underlining the sector's traditionally conservative approach to new regulations. On the other hand, banks are currently evaluating the financial and administrative impact of the newly-implemented measures; we may see fewer banks providing currency exchange services in the Czech Republic if this analysis shows that it is no longer sufficiently profitable.