Update (19 May): EML shares plunged as they came out of the trading halt after the company announced the Central Bank of Ireland's concerns relate to its anti-money laundering and counter-terrorism financing (AML/CTF) matters, risk, control frameworks and governance. Click here to read more.
Brisbane-based fintech EML Payments (ASX: EML) may have secured its largest acquisition to date at a discount last year, but recent developments in Europe show the bargain may have been due to more than just the impacts of lockdowns in France and Spain at the time.
The company entered a trading halt this morning pending an announcement about "significant regulatory concerns" notified by the Central Bank of Ireland received on Friday, 14 May.
The concerns relate to Prepaid Financial Services (PFS), which EML acquired for £131.5 million (AUD$263.5 million) in March 2020.
PFS is one of five groups embroiled in a cartel scandal in the UK pre-paid cards market, where the Payment Systems Regulator (PSR) alleges companies engaged in anti-competitive behaviour in the welfare payments market by agreeing not to compete or poach each other's clients.
The alleged behaviour occurred before EML reached an agreement to buy PFS.
Along with Mastercard and allpay, the now Australian-owned company has admited to the UK's Payment Systems Regulator (PSR) that it took part in the alleged anti-competitive arrangements between 2012 and 2018.
If the PSR concludes there have been infringements, Mastercard, allpay and PFS have agreed to pay maximum fines totalling over £32 million (AUD$58 million).
"Pre-paid card services, like these, can provide significant benefits to local authorities as one way to make welfare payments to some of the most vulnerable people in society," the regulator's managing director Chris Hemsley said at the end of March.
"By colluding in this way, we consider the parties were acting as a cartel. Because of the reduced competition local authorities may have been missing out on an alternative supplier or products that were either cheaper or better suited to both their needs and the needs of those using the pre-paid cards.
"Collusion in payments is absolutely unacceptable. Where we see it happening, we will take action, stop it, and seek to impose significant penalties."
EML expects to make the announcement before trading begins on 19 March, and a company representative declined to comment when asked whether the matter is connected to the UK cartel investigation.
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