EML shares plunge on Central Bank of Ireland’s AML/CTF probe

Shares in Brisbane fintech EML Payments collapsed after Ireland’s central bank flagged ‘significant’ concerns.

EML Payments boss Tom Cregan. Pic Annette Dew

EML Payments’ shares collapsed 45 per cent on Wednesday after the Brisbane-based fintech said regulators were probing its Irish subsidiary over anti-money laundering and counter-terrorism financing concerns.

The sudden plunge at the start of the trading session came after EML resumed trade following a two-day halt put in place after its Irish arm, PFS Card Services, received correspondence from the Central Bank of Ireland citing “significant regulatory concerns”.

“The Central Bank of Ireland’s concerns relate to (PFS’) anti-money laundering/counter terrorism financing (AML/CTF), risk and control frameworks and governance,” EML told the market on Wednesday.

The Irish regulator warned it was “minded to issue directions” to PFS per its relevant supervision and enforcement act, EML said.

“Any directions, if made, could materially impact the European operations of the Prepaid Financial Services business, including potentially restricting PFS Card Services (Ireland) Limited’s activities under the Irish authorisation,” the payments company said.

Unable to estimate the potential costs or impacts of the investigation on the group’s fiscal 2021 results, EML said that excluding these costs it was on track to achieve its guidance of underlying revenues of between $180m and $190m and underlying pre-tax earnings of between $50m and $54m.

Uncertainty over the central bank’s potential action spooked investors, who initially sent the stock plummeting 52 per cent. By the session’s close it was down 45.6 per cent at $2.80.

It is not the first time PFS has caught the attention of regulators. In March, PFS, Mastercard and Allpay agreed to pay more than £32m in fines for allegedly taking part in a cartel to reduce competition in the market for pre-paid cards.

Mastercard caught the bulk of the fines, which came after an investigation by the UK’s Payment Systems Regulator, while PFS agreed to cough up £1m for its part in breaching competition laws. This was far less than the £5m the company had provisioned for when it was being sold to EML.

The Irish central bank has now asked PFS to provide it with submissions in relation to the latest concerns, which EML said it would do by May 27.

“The Central Bank of Ireland and PFS are currently in close dialogue regarding the concerns raised and PFS is working with the central bank to assist it in receiving information and documentation relevant to its concerns,” the payments company said.

EML said it welcomed the opportunity to engage more closely with the central bank in relation to the matters raised and PFS’ business model more generally.

“EML is committed to co-operating with the Central Bank of Ireland and is taking steps to address concerns raised,” the fintech said.

The correspondence from the Irish central bank does not concern EML’s Australian or North American operations, or the operations of PFS’ UK subsidiary, or EML’s other Irish regulated subsidiary.

A spokesperson for the Irish central bank said it noted the announcement by EML to the market.

“Our regulatory engagement with the firm continues and we will not be commenting further at this time,” the spokesperson told The Australian.

The probe into PFS comes just over a year after EML bought the Irish business for $252.3m.

The deal was cheered by investors at the time, as it was renegotiated during the Covid crisis, with the final purchase price sitting a full $171m below the original $423m.

PFS’ European business was primarily operated through its UK-regulated subsidiary until late in 2020. But due to Brexit, it was required to transfer non-UK programs out of the UK.

In December last year, all of PFS’ European programs were transferred to the Irish subsidiary at the centre of the investigation.

For the March quarter just gone, around 27 per cent of EML’s global consolidated revenue (unaudited) was derived from programs operating under the Irish authorisation.