What’s happening at EML Payments?

The EML Payments Ltd (ASX: EML) share price dropped by as much as 45% on Wednesday morning. Why has the EML share price been almost cut in half?

EML share price

Concerns raised by the Central Bank of Ireland

EML’s Irish-regulated subsidiary, PFS Card Services (Ireland) Limited (PCSIL), received a letter from the Central Bank of Ireland (CBI) that raised concerns around its Anti-Money Laundering / Counter-Terrorism Financing (AML/CTF) risk and control frameworks, and governance.

These concerns solely relate to PCSIL and not any other operations.

The company advised that if CBI were to follow through with its proposed directions, it could have a material impact on the European operations of the PFS business, including potentially restricting PCSIL’s activities under the Irish authorisation.

PCSIL’s revenue represented around 27% of EML’s global consolidated revenue (unaudited) between 1 January 2021 to 31 March 2021.

The CBI has given PCSIL the opportunity to provide a response in relation to the concerns and it intends to complete this by 27 May 2021.

EML advises that it’s too early to estimate the potential impact on its FY21 results. So, excluding the potential regulatory impact, the company said it remains on track to achieve its previous guidance for FY21.

My thoughts on EML

This news highlights the risks of acquiring companies that operate in different regulatory environments.

At this stage, there is not enough information to understand what potential issues EML may need to address. In these circumstances, it is best to examine and evaluate the facts.

Given that CBI has outlined its proposed directions, it is more likely than not that EML will need to take steps to address the underlying concerns.

I will be waiting to evaluate EML’s further response on 27 May 2021 alongside any information to be released by the CBI. These responses will likely shed further light on the seriousness and severity of the concerns, which should act as an indicator of whether these are systemic issues.

Raymond Jang

Raymond is a Rask Investment Analyst. He has extensive experience in analysing and investigating businesses from his roles at a national accounting firm and at ASIC. Raymond is a Chartered Accountant and holds a Bachelor of Commerce from the University of NSW. His curiosity about the world and drive to find high-quality businesses is what gets him out of bed every morning. Outside of writing and investing, you will find Raymond playing football in a cage (trust us, it's more fun than it sounds) or at a park. If you enjoyed his analysis, check out our Rask services.