An Australian company that agreed to pay up to A$341 million (€211 million) for Prepaid Financial Services (PFS) must inject €16.5 million into the Irish e-money provider in order to address “historical deficiencies” in its UK business.
The shortfall, announced on Friday, is the third crisis since March last year when Meath-based Noel and Valerie Moran sold to Brisbane-based EML Payments.
How PFS in Britain dealt with balances on dormant and unexpired accounts before the acquisition “is inconsistent with EML’s understanding of the correct application of electronic money regulations”, the Australian company said. These balances were meant to be held for safekeeping for up to six years after the accounts expired, it added.
EML said the problem occurred before it bought PFS. It has notified Britain’s financial watchdog of its concerns and will contribute £14.1 million “to safeguard funds held by PFS UK”.
The UK subsidiary is a leading provider of prepaid cards used to deliver social welfare and other benefits. It recently won a contract to manage a stimulus package in which every adult in Northern Ireland will be given £100 on a prepaid Mastercard to spend in local shops.
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EML was aware of potential problems when it agreed to buy PFS. These included an inquiry into allegations that PFS took part in a cartel with Mastercard and other companies that distributed welfare benefits in Britain. This led to PFS agreeing to a £1 million (€1.2 million) fine last year.
However, the Australians were not prepared for the bombshell that landed last May when the Central Bank of Ireland raised significant concerns about anti-money laundering defences at PFS.
This triggered immediate suspension of EML’s shares, followed by a 40 per cent price collapse when trading resumed. EML has yet to recover, with the shares closing last week at A$3.55, losing more than 2 per cent on Friday’s news and down from A$5.15 before investors learnt of the issues in May.
A trading update from EML in June was short on detail. Its dealings with the Central Bank in Dublin are “confidential”, although EML did say the Irish inquiry has triggered questions from regulators in other markets. It cannot quantify the effects in its results for this year, but the solicitors Arthur Cox and accountants PwC are being paid up to A$2 million to help sort out the problem.
The Morans are likely to be the ultimate losers because of indemnities given to EML for legacy issues that emerge after the acquisition.
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“EML considers that, as the issues relate wholly to the period prior to its acquisition, any and all financial consequences are the responsibility of the previous owners of the PFS group,” it said in a statement. “EML has the benefit of various warranties and indemnities under the share purchase agreement entered into in March 2020 and we are assessing our position.”