The EML Payments Ltd (ASX: EML) share price has suffered another massive sell-off, dropping by 27%.
EML’s Irish subsidiary has been under pressure as the Central Bank of Ireland (CBI) put its European operations under scrutiny.
But, now it’s the UK’s turn.
EML UK under the spotlight
The company has agreed to temporarily cease onboarding new customers, agents and distributors with its UK business – Prepaid Financial Services (PFS UK), after concerns from the UK regulator, the Financial Conduct Authority.
EML tried to reassure investors by saying the impact of this temporary measure is expected to reduce total revenue by less than $5 million in FY23.
The concerns raised by the FCA are similar to what the CBI was looking at. EML is currently undertaking a remediation program with its Irish subsidiary (PFS Card Services (Ireland) Limited (PCSIL)).
The PFS UK business was part of the 2020 acquisition of the Prepaid Financial Services group, which included the Irish business, as well as businesses in France and Spain.
PCSIL is operating under a material growth cap which will expire in December 2022, which it has previously outlined to the ASX previously. Further regulatory directions or limitations are “unknown”, but the lifting of it is subject to completing the remediation program and satisfactory third-party assessment.
PFS UK’s agreement to cease onboarding will remain in place until the FCA is satisfied that PFS UK has successfully executed a remediation plan based on a satisfactory third-party assessment.
Management comments
New EML Managing Director and group CEO Emma Shand said:
It has been my priority to work constructively with the regulators. EML accepts that it has not moved quick enough in the past to address regulatory concerns in the PFS business. We need to do better, and we will.
We have made some key senior management appointments are putting more resources into building capability in key areas including governance, risk management and regulatory compliance.
The payments and e-money sector has grown substantially in recent years and EML like money payments companies is subject to increased regulatory scrutiny across Europe. Whilst the supervisory process is typically confidential, EML is disclosing this as part of our continuous disclosure obligations.
Final thoughts on the EML share price
This is another painful blow for suffering shareholders. Is the European business going to be set free at the end of this year, or not? How much will the UK business be hurt by this process?
At some point one would think that all of these regulatory headwinds will finish, but it keeps escalating. It may be cheap on a 5-year view, but the last year of updates hasn’t given me confidence for its long-term growth prospects. But, the higher interest rates should help generate earnings on the cash it manages for clients.
