Exchange, a foreign-exchange services provider, is threatening to sue a high street bank it accuses of abusing banking secrecy laws to steal its clients. Officials of the foreign-exchange provider claim its bank, CSOB, unlawfully used insider information it obtained while servicing Exchange clients.

"We've already drafted a suit [against CSOB], but the two companies are still in the process of negotiations," Jindrich Simbersky´, the company's lawyer, told The Prague Post. "We've raised our demands and CSOB has until the end of August to respond. Based on its response, we'll take action."

Exchange, a nonbanking company that provides foreign exchange services in Prague, will sue CSOB for 320 million Kc ($13.3 million) in damages resulting from the alleged insider trading, Ekonom recently reported.

According to Ekonom's account, CSOB took information it acquired on Exchange's high-volume trading clients and lured them away by offering better rates than those of Exchange and those listed in its regular exchange table. Out of the total 320 million Kc, Exchange is demanding 170 million Kc for compensation of lost profit resulting from Exchange's effort to retain its clients by matching CSOB's offers and 150 million Kc in compensation for unfair competition.

Ales Pospísil, head of CSOB's small and midsize business department, insists that Exchange's claims are ridiculous and that CSOB will not pay any compensation. Pospísil said banks do not steal clients and nonbanking foreign exchange services providers wouldn't be in business if not for banks.

Based on the Foreign Exchange Act, nonbanking foreign exchange services are required to keep an account at a commercial bank operating in the market. As a result, banks in fact carry out the sales and purchases of foreign exchange and the foreign exchange service providers act as mediators of the deal.

"CSOB is not a monopoly or a dominant provider in the field of foreign exchange services, and so Exchange can go to another bank whenever it wants," Pospísil pointed out. "The thing is that they need to be certain that clients will follow. Foreign exchange services providers derive their businesses from banks and they're merely parasites of [banking]."

Otakar Schlossberger, the country's financial arbiter, said currency exchanges are not direct competitors to banks because banking services are more complex. He explained that foreign exchange services are not a significant part of commercial banks' portfolios.

Zivnostenská banka spokesman Ivo Polisensky´ agreed: "Banks can offer foreign exchange services in combination with hedging products. Currency exchange firms can hardly compete in this field," Polisensky´ said.

Hopes to settle

Exchange notified ČSOB in February that it had evidence the bank was luring clients from Exchange. In July ČSOB reportedly responded by claiming that Exchange's charges were unjustified and absurd.

Pospíšil claims the reality between to two types of entities is the other way around. He said it is nonbanking foreign exchange service providers who often employ dumping tactics to lure away banking clients.

"In general, [taking away clients] has been one of the tactics of nonbanking foreign exchange service providers. Their business is based on parasiting on banking clients," Pospíšil said. He also said Exchange's claims that ČSOB excessively monitored accounts were ridiculous. Based on the money laundering prevention law, he said, every commercial bank is obliged to monitor clients' accounts and report financial transactions to market watchdogs.

Exchange's lawyer, Šimberský, said the foreign exchange service provider never intended to make the case public and was hoping to reach an out-of-court settlement with ČSOB.