Noel and Valerie Moran finally see light at the end of tunnel in wake of PFS adversity

It might be an exaggeration to describe May 18th this year as the worst day of Noel Moran's life, but it certainly wasn't one of the better ones. He woke up that morning to the news that the Central Bank was considering taking regulatory action against Prepaid Financial Services (PFS), a company founded by him and his wife Valerie in 2008, and which he had sold just over a year earlier.

Like most people, he first heard of what was to become a long, in-depth investigation, by reading about it in the media. Neither the financial regulator nor EML Payments, the Australian fintech that had acquired PFS, had told him the news in advance.

“I only found out about it all when I saw it in the newspaper. It obviously came as a huge shock,” says Moran.

As the inquiry nears its end with no findings yet made against PFS or its parent, Moran is finally ready to talk about its impact on him, his wife and his other business interests.

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“Obviously, the whole investigation has been upsetting and damaging, both from a reputational point of view, and financially,” he says.

“It isn’t nice to see your name linked in news articles to activities undertaken by drug cartels and terrorists but that is what happened to us, with some reporting noting the use of prepaid cards for these things. We ran a perfectly respectable business and I knew from day one it would be cleared of any wrongdoing but we’ve had to put up with having a cloud over our heads all this time,” Moran adds.

“PFS issued more than 10 million accounts and, despite there being 40-odd people sent in to investigate the company on behalf of the regulator, nothing on anti-money laundering or counterterrorism has been uncovered. I knew that would be the outcome as we’d carefully managed the business for so many years.”

Publicly listed businesses

The entrepreneur is annoyed with the way the news first emerged and is keen for the regulator to revise the means by which it announces investigations, particularly ones involving publicly listed businesses.

The businessman also believes that, while EML had no other option but to tell shareholders about the investigation, they relied on that information to avoid paying a €55 million earn-out the Morans are due from the sale of PFS.

“They [EML] saw an opportunity. It was just perfect timing for them because they would have had to pay a significant part of the earn out in year one but then the Central Bank came in and it gave EML an option to accrue a lot of expenses that meant they didn’t have to pay us,” Moran says.

Legal action is likely to follow after the inquiry concludes as the couple seek to claw back monies they believed are still owed to them.

In addition to not receiving any of the earn-out due so far, the Morans, who owned 81 per cent of PFS prior to the sale, further lost out as the value of the 6.9 per cent stake they have in EML, shrank on news of the investigation.

Shares in Brisbane-based EML plunged almost 46 per cent on the day it emerged the Irish financial regulator had raised anti-money laundering and counterterrorism concerns over PFS. A total of AUS$850 million (€535 million) was wiped off EML’s market value that day.

The stock has since rebounded and was up 31 per cent last week after the Central Bank gave permission for EML to sign new customers for its Irish subsidiary, albeit with growth restrictions in place.

The investigation hasn’t concluded yet but the announcement indicates it is all over bar the shouting. The remainder of the inquiry is now centred on governance issues, which Moran insists relate solely to the Aussie fintech and its management of PFS, rather than to any part of the business that he and his wife previously managed.

Speaking publicly for the first time since news of the investigation broke over 16 months ago, Moran says it has been difficult to stay quiet but that this was something he decided on doing early on. This was, he stresses, largely because he felt there was no other option.

“All of this blew up after we had left the company but no one from EML contacted me about it and so it was hard to comment on all that happened then or afterwards because I wasn’t always up to speed on what was going on,” he says.

“I first heard about the investigation through the media and that has largely been the way I’ve continued to follow its progress,” Moran adds.

Not only was Moran not kept in the loop regarding the investigation, he was also worried about speaking out given that Ecomm, another fintech he founded with his wife and which is regulated by the Central Bank, could face difficulties if he did.

Classic start-up fashion

This should be a good news story. The Meath-based businessman and his wife had founded PFS, which provides e-wallets, prepaid cards and current accounts, in classic start-up fashion at the kitchen table of their apartment in London in 2008.

Prepaid cards facilitate cashless shopping and digital transactions for people who do not have access to other forms of electronic payments, such as standard debit or credit cards. With more people moving away from cash in recent years, PFS had grown into a thriving business, which made it an obvious target for a scaling company such as EML, which was looking to make inroads into Europe.

PFS had been fined €1 million by the French banking regulator in September 2019 for several lapses in its anti-money-laundering controls. Earlier this year, it received a similar fine for having participated in a cartel in Britain with rival providers in Britain. However, EML knew of these cases at the time of the takeover agreement and neither was linked to the recent Central Bank inquiry.

EML originally announced an agreement to acquire PFS in November 2019 in a deal valued at AUS$453.6 million (€282.9 million). However, it subsequently secured a AUS$189.1 million discount on the deal due to the impact of the Covid-19 crisis, which emerged shortly before the transaction concluded at the end of March 2020.

Just over 14 months later, the Central Bank warned EML of the possibility of restricting the activities of its Irish subsidiary if it didn’t address “significant regulatory concerns” linked to anti-money laundering and counterterrorism financing matters, risk, control frameworks and governance. Given that the Trim-headquartered unit represented 27 per cent of the group’s revenues at that point, this was big news.

Or was it? Moran says the manner in which the regulator presented the news to EML and the manner in which it, in turn, announced it, made it seem much more serious than it was and led to him and his wife being viewed negatively.

“At the end of the day this was just an audit, the type of audit that takes place all the time. But the way it was announced made things look worse,” he says.

“If you read the letter the Central Bank sent out at face value then you would have thought they were coming in to close the business. I brought up this with them. They said it was just the standard letter sent out in these situations but they should have factored in the impact it might have when sent to a publicly listed company,” he adds.

The businessman believes the investigation only came about after PFS shifted its European activities away from Britain, where they had been regulated by the Financial Conduct Authority, due to Brexit.

“It’s what you would expect the regulator to do in fairness. We were among the largest issuers in Europe and, as the Central Bank is very risk averse, it was no surprise that it would want to carry out an audit. But the way in which it informed EML wasn’t very smart. I think the regulator itself was taken aback by the company issuing an announcement on it as they didn’t even have a conversation with it before doing so,” he says.

“The regulator should have sat down with EML and explained what was going to happen so there could be no misinterpretation. I think if it would have done this, I’m not sure any announcement would have been necessary as it would have just been seen as a normal audit,” Moran adds.

EML retained the professional services firm PwC and solicitors Arthur Cox as the investigation got serious. The fintech has incurred costs and provisions of at least AUS$11.4 million to date in relation to the inquiry. Moran believes the final bill will be much higher with those costs affecting the earn-out he and his wife are due.

Reading between the line

The businessman says he still hasn’t been told if he and his wife have been given the total all clear but that he is “reading between the lines” following last week’s statement from EML announcing the fact they can sign up new customers.

“If you read the statements that EML put out during the investigation, they were all about anti-laundering and counterterrorism concerns and it was easy for Valerie and I to be blamed for that. What they haven’t been saying is why there are still restrictions on growth and the reason for that is because there are still concerns with governance,” said Moran.

“They [EML] have had months to get their governance issues sorted and it looks like they still haven’t done it and a lot of the remediation they are talking about and the many millions being spent on it is linked with that,” he adds.

The entrepreneur says that while it has been a distressing time for him and his wife, the support he has received from family, friends, associates and customers has been heart-warming. In addition, he believes that as the investigation comes to an end, he and Valerie have been vindicated.

“Anyone we’ve done business with knows exactly how we ran PFS. I think the only positive thing to emerge from all of this is that the most risk-averse financial regulator in Europe has gone over our business and found nothing untoward. That is what we will take from this,” he says.