Just five minutes after the market stopped trading for the day, EML Payments Ltd (ASX: EML) released an announcement regarding ongoing regulatory action by the Central Bank of Ireland (CBI).
The EML share price will be on watch tomorrow and likely heading south as the market reacts to the news.
EML share price
Good, but not good enough
EML has received further correspondence from the CBI regarding its PFS Card Services Ireland Limited (PCSIL) operations.
While acknowledging the governance changes and remediation plan undertaken by EML, the CBI has conveyed PCSIL’s growth strategy is higher than what it would like to see.
As a result, “the CBI has proposed that certain limits be applied to programs” concerning the PCSIL business.
EML noted that limits would have a negative impact on its PSCIL business. However, it would not impact the broader EML group.
Subject to board approval, EML management will present to the CBI what it deems appropriate limits on almost 27,000 programs currently in operation under PCSIL.
EML will also provide submissions relating to the CBI by October 28.
Rewind for a minute
If you’re a little confused with everything going on, let’s rehash what led EML to this point.
Back in May, the CBI raised concerns around Anti-Money Laundering / Counter-Terrorism Financing (AML/CTF), risk and control frameworks, and governance for PCSIL.
PCSIL is the Irish subsidiary of EML and represents about 27% of the group’s revenue.
Subsequently, the EML share price was slashed 45% as the market tried to gauge the impact of the investigation.
In its FY21 results, EML relieved some of the market’s concerns. The company provisioned $11.4 million for costs for “professional advisory, remediation and other potential costs associated with resolving the matter”.
EML and the CBI remained engaged in talks. However, it looked like the matter was largely resolved.
Now it seems there may be further action by the CBI regarding PCSIL’s growth.
In plain English
Don’t stress – I’m also confused by all the acronyms.
Basically, the Irish regulator raised issues with EML’s European activities, which come under PCSIL.
EML and CBI went back and forth discussing the issues, implementing actionable steps to rectify the problems and agreeing on remuneration.
Now the CBI looks to be putting the clamps on PCSIL growth, likely to ensure the same issues don’t arise again.
Possible steps may include a cap on account balances or restricting the number of accounts per client.
Either way, this is a blow for EML.
I expect the share price to dip on the open tomorrow as the market absorbs the news and prices in lower growth for the PCSIL business.
