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No long-term impact from regulatory action, says EML boss

19 August 2021 6:33AM

EML Payments chief executive Tom Cregan was at pains yesterday to play down the impact of regulatory action by the Central Bank of Ireland on the company’s European business activities.

Speaking at an investor briefing to discuss the company’s 2020/21 financial report, Cregan said EML was having regular meetings with the CBI and the discussions were “not adversarial”.

He said the company has made a provision of $11.4 million for advice, remediation and possible fines, which should be sufficient to cover the matter. He expects the remediation to be completed by the March quarter next year.

EML acquired a UK/Irish company Prepaid Financial Services early last year. 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.

In May this year, the CBI wrote to PFS Card Services Ireland Ltd, to raise concerns about the risk of money laundering and terrorism financing within the business, as well as 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.

According to that statement, 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.

Yesterday, Cregan was playing that down, saying only that the company’s deal pipeline could suffer some short-term delays as it completed the remediation work. He said the regulatory action would not impose any capital or investment constraints on the business and it is free to onboard new business.

“In terms of the long-term business synergies, nothing changes’” Cregan said.

He was also keen to make the point that EML went into the PFS deal with its eyes open. He said EML knew that PFS had compliance failures in its past and it started work on strengthening its risk management after the acquisition.

PFS struck trouble again last month, when PFS UK reported a shortfall in dormant and expired e-money accounts. PFS UK is an authorised eMoney institution regulated by the Financial Conduct Authority and under UK electronic money regulations cash must be held in the accounts for six years after expiry.

EML expects to pay around A$26.6 million into safeguarded funds held by PFS UK.

Cregan said the purchase price of PFS included an earnout component of around $110 million, which has been adjusted down to around $15 million.

For the year to June, EML reported a 60 per cent increase in revenue to $194.2 million, based on gross debit volume of $19.7 billion. EBITDA rose 30 per cent to $32.5 million.

However, after accounting for $29 million of depreciation and amortisation expenses, $11.4 million of provisions related to the regulatory issue and a fair value loss of $16.2 million on a contingent consideration related to an acquisition, the company made a loss of $30 million.

Net cash flow from operating activities rose from $22.1 million in

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