EML Payments faces a “material impact” on its European operations from the undertakings the Central Bank of Ireland is likely to impose in response to concerns about risk management and governance at EML’s Irish subsidiary.
The Central Bank of Ireland has advised EML Payments’ Irish subsidiary PFS Card Services Ireland Ltd about “potential directions”, which include putting a cap on its growth.
In May, the CBI wrote to PFS, to raise concerns about the risk of money laundering and terrorism financing within the business, as well as concerns about the company’s risk management framework and governance.
EML said in a statement last week that “the CBI has advised that PCSIL’s proposed material growth policy, as requested and approved by the PCSIL board, is higher than what the CBI would want to see”.
EML acquired UK/Irish company Prepaid Financial Services early last year. PFS is a provider of white label payments and banking-as-a-service technology. Its customers include financial institutions, non-financial corporates, fintechs and public sector organisations in 24 countries.
When EML presented its 2020/21 financial report in August, it said it had made a provision of $11.4 million for advice, remediation and possible fines, which should be sufficient to cover the matter. It expected the remediation to be completed by the March quarter next year.
EML Payments chief executive Tom Cregan said the company’s deal pipeline could suffer some short-term delays as it completed the remediation work. He said the regulatory action would not impose any capital or investment constraints on the business and it was free to onboard new business.
Things look a bit more serious now. The CBI has proposed that certain limits be applied to programs that, if implemented, could have a negative impact on the PCSIL business.
Later this month PCSIL will make a submission to the CBI in relation to the proposed directions.
EML said the issue with the CBI does not have any impact on EML’s Australian or North American businesses, or PFS’s UK business, which is regulated by the UK Financial Conduct Authority, or other European businesses.
However, PFS UK has its own problems. In July, it reported a shortfall in dormant and expired e-money accounts. PFS UK is an authorised e-money institution regulated by the Financial Conduct Authority and under UK electronic money regulations cash must be held in the accounts for six years after expiry.
EML expects to pay around A$26.6 million into safeguarded funds held by PFS UK.
Cregan said the purchase price of PFS included an earnout component of around $110 million, which has been adjusted down to around $15 million.
He was keen to make the point that EML went into the PFS deal with its eyes open. He said EML knew that PFS had compliance failures in its past and it started work on strengthening its risk management after the acquisition.