EML Payments sheds $800m in value as Irish Central Bank concerns threaten its EU operations

EML Payments sheds $800m in value as Irish Central Bank concerns threaten its EU operations

Central Bank of Ireland. Photo from architects Henry J Lyons.

EML Payments (ASX: EML) shares plunged 43.5 per cent as they came out of a trading halt this morning, after it was revealed the Central Bank of Ireland (CBI) may take actions to restrict a subsidiary that contributes more than a quarter of the Brisbane-headquartered group's global revenue. 

The company's PFS Card Services (Ireland) Limited - known as PCSIL - received a letter from the Irish regulator on Friday raising "significant regulatory concerns" over its anti-money laundering and counter-terrorism financing (AML/CTF) matters, risk, control frameworks and governance.

In the correspondence, the regulator said it was minded to issue directions to PCSIL under section 45 of the Central Bank (Supervision and Enforcement) Act 2013.

"The directions, if made, could materially impact the European operations of the Prepaid Financial Services business, including potentially restricting PCSIL's activities under the Irish authorisation," EML said in today's update.

"During the period from 1 January 2021 to 31 March 2021, EML estimates that approximately 27 per cent of EML's global consolidated revenue (unaudited) derived from programs operating under PCSIL's Irish authorisation.

"The CBI has invited PCSIL to provide it with submissions in relation to the concerns, which PCSIL intends to do by 27 May 2021."

EML Payments has clarified the correspondence does not concern its Australian or North American operations, PFS' UK subsidiary, or EML's other Irish regulated subsidiary EML Money DAC.

In the opening of trading EML shares were down 43.5 per cent to hit $2.91, representing a fall of more than $800 million in its market capitalisation and erasing significant gains made since September last year.

EML says it welcomes the opportunity to engage more closely with the CBI in relation to the matters raised and PCSIL's business model more generally.

"EML is committed to cooperating with the CBI and is taking steps to address concerns raised," the company said.

"EML is independently regulated in multiple regions and subject to regular audits by various parties including Central banks, payment schemes, external and internal auditors and other third parties."

The group says it takes regulatory compliance, AML/CTF, risk management and governance very seriously, and is committed to ensuring its global operations meet the highest standards of risk and regulatory compliance.

PFS was acquired by EML Payments in March 2020 for £131.5 million (AUD$263.5 million), representing a significant discount on the original offer price due to uncertainty surrounding the impacts of COVID-related lockdowns on operations in France and Spain.

The subsidiary is also 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).

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