Regulators in Lithuania revoked the license of UAB Payrnet, a payments firm that was part of failed UK group Railsbank Technology, citing "gross, systematic and multiple violations" of local laws.
The Bank of Lithuania will start bankruptcy proceedings against Payrnet, it said in a statement Thursday, adding it also intends to ask law enforcement authorities to investigate any possible criminal offenses.
Payrnet, which had a license to operate as an electronic-money institution, or EMI, across the European Union and processed some €7.5 billion ($8.3 billion) of transfers last year, violated laws linked to the prevention of money laundering and terrorist financing, the regulator said.
Payrnet, along with UK-regulated Payrnet, were both subsidiaries of Railsbank, a onetime darling of the UK fintech sector that raised millions of dollars from venture capitalists from Silicon Valley to Tel Aviv. Co-founder
But the group has since unraveled amid financial and regulatory problems, an implosion that has added to scrutiny of Europe's payments scene.
The Bank of Lithuania stopped Payrnet from acquiring new customers in February, stating there was reason to suspect that it was "grossly and systematically violating" laws. In March, directors placed Railsbank into administration, a form of UK bankruptcy, and transferred its assets to a new parent company backed by investors including D Squared Capital and Moneta Venture Capital.
The new parent company, called Embedded Finance, does not own the Lithuanian subsidiary, according to Sophie Scott, an external spokesperson. The decision by the Bank of Lithuania does not impact its UK customers, she said.
"Any potential option to purchase UAB Payrnet and its EU EMI license remained subject to approval by Bank of Lithuania," Scott said. "Today's ruling removes that option."
The Bank of Lithuania stated that Payrnet made payments to cover expenses incurred by "other companies in the group of companies to which UAB Payrnet belongs." This has resulted in "an irrecoverable amount of more than €7 million, which had a very negative impact on the financial position of the institution," the nation's central bank said.
Regulators made multiple allegations of shoddy controls. Payrnet didn't sell payment services to customers directly, operating instead through dozens of intermediaries. However, the firm failed to conduct due diligence on most of them, according to Lithuanian regulators. Risk assessments of clients to prevent money laundering and terrorist financing were "inadequately conducted and in some cases not conducted at all," they said.
The UK license of Payrnet Ltd. is still active, according to the Financial Conduct Authority's
—With assistance from Milda Seputyte.
