It seems like it could be a case of déjà vu for EML Payments Ltd [ASX:EML] today. The fintech stock is trading shares 3.03% lower at time of writing, falling due to new regulatory concerns.
This news comes just months after the horrific sell-off of the stock in mid-May. Back when EML notified investors that its recent acquisition — PFS Card Services — had been singled out by the Central Bank of Ireland for possible anti-money laundering concerns.
And while the news today certainly isn’t as dire as that development, it is a haunting reminder of ongoing issues. Which EML is desperately trying to work through and move on from.
Let’s delve into what’s gone wrong this time…
Questionable conversions
EML has apparently found further examples of dodgy activity within the PFS business. Which, somewhat fortunately, predate EML’s acquisition of the company.
In other words, this potential breach hasn’t happened under EML’s watch.
However, what they have found is ‘the accelerated conversion into cash of funds in dormant and expired e-money accounts’. Cash that typically, under regulatory standards, is meant to be retained in safeguarded accounts for at least six years after the e-money accounts expire.
As a result, EML is expecting to need $26.6 million in order to shore up these safeguarded funds. With the potential for this capital to be recoverable once the full six-year period is up.
A slight slip-up that is more frustrating than costly. Although management has conceded that this error will be reflected in accounts from FY22 through to FY27.
Because these oversights predate EML’s acquisition, they are exploring their options for recompence. Noting that ‘any and all financial consequences are the responsibility of the previous owners of the PFS group’.
So, shareholders at least have some silver lining to hold out hope for.
And this story, in all likelihood, will be more of a PR problem than a financial one.
Nevertheless, the timing and nature of this compliance issue aren’t ideal. Lending even more concern as to whether EML didn’t do enough due diligence when acquiring PFS.
What’s next for EML?
On a more positive note, this news come after a big win for the company yesterday. With EML confirming that it has won a $273 million tender from the Northern Ireland Government.
A deal that should help the company progress past these recent issues. As well as giving users the chance to get acquainted with EML’s financial cards.
Or, as they like to refer to it: a disbursement-as-a-service (DaaS) payment solution.
Something that investors will certainly be pleased to see.
If, however, you’re looking for less…’polarising’ fintech stocks, then there are plenty of alternatives. With the small-cap sector full of opportunities to pick from. Including the three stocks found in our latest fintech report, right here.
So, if you’re looking to get on the fintech boom, check it out now.
Regards,
Ryan Clarkson-Ledward,
For Money Morning
PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here
