Shares in Australian fintech firm EML Payments plunged almost 46 per cent in Sydney on Wednesday as it emerged the Irish Central Bank had raised anti-money laundering and counter-terrorism concerns at its Irish-founded Prepaid Financial Services.
EML said in a statement that the Central Bank may restrict the activities of its Irish-regulated subsidiary PFS Card Services (Ireland) Limited, which is responsible for PFS’s European business and accounted for 27 per cent of group revenues in the first three months of the year.
The Central Bank’s concerns relate to anti-money-laundering and counter-terrorism financing matters, risk, control frameworks and governance, it said. EML has until May 27th to issue a response.
The share slump wiped $850 million Australian (€538.7 million) off EML’s market value.
“The directions, if made, could materially impact the European operations of the Prepaid Financial Services business, including potentially restricting its activities under the Irish authorisation,” EML said in its update to investors. “EML is committed to co-operating with the [Central Bank of Ireland] and is taking steps to address concerns raised.”
EML agreed in late 2019 to buy PFS, which was founded by Co Meath couple Noel and Valerie Moran in 2008, for an upfront payment of $453.6 million (€289 million), with the equivalent of an additional €60 million subject to the company hitting certain earnings targets.
However, EML secured a €121 million discount on the purchase price before the deal closed in March last year due to the “economic realities” brought about by the Covid-19 crisis.
The fast-growing area of prepaid cards, which facilitates 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, has been accelerated by the Covid-19 pandemic. US-based Allied Market Research estimates the global prepaid card market will grow from $1.85 trillion (€1.51 trillion) in 2019 to $5.51 trillion by 2027.
However, a report by S&P Global Market Intelligence last year highlighted the “dark underbelly” of this segment of the financial world, saying prepaid cards have the potential for abuse, from petty scams to money laundering for drug lords and terrorists.
PFS was fined €1 million by the French banking regulator in September 2019 for several lapses in its anti-money-laundering controls, including failures to block hundreds of cash withdrawals and foreign transactions using anonymous cards and the non-reporting of suspicious card activity to authorities.
PFS’s European business mainly operated through its UK-regulated subsidiary until the end of last year, when it was transferred to the Irish unit as a result of Brexit.
PFS was founded by the Morans in London in 2008. It became one of Europe's largest issuers of e-money, with a presence in 25 countries by the time it was sold, and bases in Trim, Malta, London and Manchester.
EML said any action undertaken by the Central Bank would not affect its Australian or North American operations, or EML’s other Irish-regulated subsidiary EML Money DAC.
It added it also wouldn't affect PFS's British subsidiary, which, along with Mastercard and Allpay, recently provisionally agreed to pay fines in the UK totalling more than £32 million (€37.2 million) for their alleged role in a cartel exploiting prepaid cards used to distribute welfare funds to the homeless and victims of domestic abuse.
Mr Moran told The Irish Times on Wednesday that he could not comment on the Central Bank investigation “as I don’t have any detail regarding this incident other than what is in the public domain”. He left EML earlier this year, he said.
A spokeswoman for the Central Bank declined to comment beyond EML’s statement.