EML Payments Shares Plummet 42% as Regulator Raises (ASX:EML)

The EML Payments Ltd [ASX:EML] is in a world of hurt today.

The EML Payments share price have collapsed by 42.52% at time of writing. Sinking significantly after markets opened due to a worrying update from the company.

It seems one of its Irish subsidiaries, which was only acquired in 2019, has attracted untoward regulatory attention. With the Central Bank of Ireland raising ‘significant regulatory concerns’ over a lax in anti-money laundering and counterterrorism financing risk controls and frameworks.

Needless to say, it’s a damning allegation, and one that could prove costly for EML…

Guidance scrapped, outlook hazy

According to EML, this entire fiasco stems back to Brexit — a key policy that prompted the company to move its UK operations to Ireland instead to remain competitive in the entire EU region.

In doing so, though, these operations came under the regulatory oversight of the Central Bank of Ireland. And, as of last Friday, the central bank has made it clear to EML that these operations may have failed to meet certain risk and governance requirements.

As of right now, the details have yet to be made public.

What we do know, though, is that EML has revoked its FY21 guidance. Stating that it is unable to estimate either the direct or consequential costs of this matter, nor the possibility of any impact on the future viability of these operations to continue or not.

In EML’s own words:

The directions, if made, could materially impact the European operations of the Prepaid Financial Services business, including potentially restricting PCSIL’s activities under the Irish authorisation.

During the period from 1 January 2021 to 31 March 2021, EML estimates that approximately 27% of EML’s global consolidated revenue (unaudited) derived from programs operating under PCSIL’s Irish authorisation.

Therefore, if this subsidiary were unable to continue, it would be a huge blow to EML’s aspirations. Taking out a huge chunk of their top-line and bottom-line figures.

Which is precisely why the share price has been in free fall today.

Granted, as the AFR reports, the signs were on the wall for anyone keeping a close eye on EML’s recent results. As they report:

One potential reason for the dramatic change of heart among professional investors is that a dig through EML’s accounts shows it had a $300 million working capital or asset deficiency black hole as at December 31, 2020.

A grim warning of the potential oversight within the business.

Now the only question is how much this screw up will cost them…

What’s next for EML Share Price?

More than likely, this is the start of a long process for the company and its shareholders.

After all, legal proceedings of this magnitude usually take considerable time and money. Especially if EML chooses to refute any potential allegations.

As for if or when that might happen, no one knows.

Right now, though, both EML and the Central Bank of Ireland are cooperating. No doubt hoping to get to the bottom of what these ‘concerns’ may entail.

A stark reminder of the volatile nature of these highly regulated financial service providers. A distinction that could leave any fintech stock at the mercy of a market crash.

But that’s the risk you take when you deal with these kinds of stocks. Because the opportunities are often far greater when they do in fact do things by the book.

You can read all about the high-flying fintech sector in our latest report, which includes three recommendations to get you started.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

PS: Discover three innovative Aussie fintech stocks with exciting growth potential. Download your free report now.


Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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