Card payment group Prepaid Financial Services’ UK arm paid an “illegal” dividend to the then Irish parent group in 2019, the firm’s new owner EML has said in accounts just filed in Britain.
The £9m (€10.8m) dividend was paid by Prepaid Financial Services Ltd (UK) to its then-Irish parent company a year before the owners Noel and Valerie Moran sold the business to Australia’s EML in a headline-grabbing sale that potentially valued PFS at more than €200m including conditional earn-outs. The dividend was fully reported in the accounts and proportionate to the then financial results until the new EML revisions.
The allegation regarding PFS (UK) centres on the treatment of unused customer balances on pre-paid cards and accounts before EML took over.
It is normal in the industry for unused balances on expired cards to eventually be collected as income by firms, subject to strict rules over timing.
According to EML-managed PFS (UK)’s latest accounts for 2021, the 2019 results previously reported had been boosted as a result of “accelerated conversion to cash and revenue of dormant accounts and expired e-money accounts prior to six years after the expiry date”.
That meant cash balances were removed from so-called safeguarded funds prior to completion of a six-year period from card expiry.
EML, whose CEO is Tom Cregan, said it does not consider this to be in accordance with Britain’s eMoney Regulations, and in July last year said it had paid approximately £14.8m into the UK safeguarded accounts after identifying the issues.
The newly filed accounts for 2021 include significant further detail, with a re-statement of revenue and profit and loss accounts for 2019, known as a prior years adjustment, that shows the change pushes a previously reported 2019 profit of €3m into a loss of €1.5m.
The change meant PFS UK had: “Insufficient restated distributable profits available for the 2019 dividend distribution, causing the dividend to be considered illegal”, the accounts state.
The deficit in reserves has subsequently been reversed through recognition of profits, the accounts say.
EML’s spokesperson said the issues identified in the UK operation were self-reported to the relevant regulator, the Financial Conduct Authority, in mid-2021.
The spokesperson said the issues found in the UK in relation to the early recognition of expired accounts as income were not found in the Irish arm.
“The safeguarding issues only impacted the UK regulated entities. The issues were wholly historical and related to the period prior to EML’s acquisition,” they said.
PFS founder and former CEO Noel Moran, who stood down as a director of PFS (UK) in June 2021, could not be reached for comment yesterday.
The new claims regarding the dividend are the latest in a litany of claims and
controversies about Prepaid Financial.
In 2019 French authorities fined the group €1m over its anti-money laundering controls. Earlier this year PFS was fined £916,746 (€1.1m) by the UK’s Payment Systems Regulator following an investigation into cartel behaviour in prepaid cards issued to people receiving welfare benefits.
In May 2021, EML said Prepaid Card Services, part of the former PFS, was the subject of a probe by the Central Bank relating to risk and control frameworks and governance regarding anti-money laundering/counter-terrorism financing measures. News of the probe triggered a plunge in the value of EML shares and has seen EML rack up €7m in legal and other costs.