The EML Payments Ltd (ASX: EML) share price is sinking, it’s down 19% today after giving an update.
EML is a business that enables various forms of electronic payments to occur such as gift cards, virtual bank accounts, payouts, salary packaging and so on.
Central Bank of Ireland (CBI) update
The CBI is an important entity for EML’s progress. It is a regulator of EML’s European operations, namely the Irish subsidiary PFS Card Services (Ireland) Limited (PCSIL). The CBI was previously concerned about EML in regards to anti-money laundering and counter terrorism financing (AML/CTF).
So, it set a material growth limitation over EML’s total payment volumes which is due to expire in early December 2022. It has also been undertaking a remediation programme at the direction of CBI since July 2021, with the assistance of external expert advisors.
Today, the company gave an update.
While EML has undertaken and completed “significant work”, it said there is more to do. The business said that CBI has constructively engaged with PCSIL and identified “shortcomings in components” of the remediation programme, particularly the sequencing and approach taken to the risk assessment of its distributors, corporates and customers.
What this means for EML
The All Ordinaries (ASX: XAO) share said that it will adopt a “revised approach” to those components and completion of this work may result in “additional controls” being embedded into the internal control framework.
EML said many activities in preparation for third party assurance have already commenced and it is anticipated that the adjustments to the remediation programme will result in assurance being finalised in 2023.
It’s unknown if there will be further regulatory direction or limitation after the total payment volume growth limitation expires in December 2022. But, EML is actively engaging with CBI.
EML said it’s wholly committed to full compliance with its regulatory obligations. It’s confident that its internal controls provides value and positions it for scalable and sustainable growth in Europe and beyond.
Interest rate rise
EML noted that the ECB increased its interest rate by 50 basis points, or 0.50%, which is expected to immediately benefit its European business by approximately $4 million on an annualised basis.
The company expects a favourable interest rate environment to partially offset the elevated cost base in Europe due to the remediation programme.
Summary thoughts on the EML share price
With further negative news, it’s not surprising to see that the market has sold off EML.
Investors would be hoping that the CBI situation would be resolved sooner rather than later. But there is still uncertainty.
I do think that this will be eventually resolved, so the problems are just a temporary issue, though it’s proving to take longer to work through.
In my opinion, the decline in the EML share price reflects the difficulties it is experiencing. But, it could certainly go through more volatility in the coming months. However, rising interest rates should allow it to earn more on the cash it’s holding.
