EML Payments has run into more strife with its UK/Irish subsidiary Prepaid Financial Services, disclosing that there is a significant shortfall in dormant and expired “e-money” accounts.
EML said that under UK electronic money regulations, cash must be held in the accounts for six years after expiry. It expects to pay around A$26.6 million into safeguarded funds held by PFS UK.
PFS UK is an authorised eMoney institution under UK law, regulated by the Financial Conduct Authority.
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.
At the time of the acquisition in March last year, EML claimed the deal would make it one of the world’s leading prepaid payments providers and a leading fintech enabler in open banking. It said the acquisition would add digital banking and multi-currency offerings to its product suite.
EML stressed that the deficiencies were “historical in nature”, pre-dating EML’s acquisition. It also said that, subject to audit, the payment would have no impact on earnings.
In May, the Central Bank of Ireland wrote to another division of the business, PFS Card Services Ireland Ltd, to raise concerns about the risk of money laundering and terrorism financing within the business, as well as its concerns about the company’s risk management framework and governance.
In a statement to the ASX on May 19, EML said that in its correspondence the Central Bank of Ireland stated that it “is minded to issue directions” to PFS pursuant to the Central Bank Act.
The directions, if made, “could materially impact” the European operations of the prepaid financial services business, including potentially restricting PFS’s activities under its Irish authorisation.
As well as the threat of regulatory sanction, EML faces the prospect of a class action over the matter. In June, class action law firm Shine Lawyers announced that it was considering legal action against EML Payments, over its failure to notify the market of regulatory and governance issues affecting its subsidiary, PFS Card Services Ireland Ltd.
Shine’s class action practice leader Joshua Aylward said in a statement that the Central Bank of Ireland wrote to PFS on May 13 and there was a delay in responding which constitutes a breach of continuous disclosure rules.
EML has not updated the market on the issue since May.
The reason the PFS business is regulated in the UK and Ireland is that prior to December 2020 the business operated primarily through its UK-regulated subsidiary. However, as a result of Brexit, PFS was required to transfer non-UK programs out of the UK. All of its European programs were transferred to PFS Card Services Ireland Ltd.