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The licence of the once Railsr subsidiary has been revoked by the Bank of Lithuania for what the regulator says are serious violations of compliance requirements.
PayrNet, an electronic money institution, has now lost its licence over “serious, systematic and multiple violations of legal acts”.
According to the Bank of Lithuania, the company had violated the country's laws relating to e-money and e-money institutions, payments and the prevention of money laundering and terrorist financing.
This means that the institution can no longer provide financial services and has to return funds to its clients, who have been encouraged to contact the firm.
In its justification for revoking the licence, the authority highlighted shortcomings in its monitoring of client relationships, and said that the company had failed to adequately safeguard funds.
The Baltic central bank has now said that it will apply to the courts for the initiation of bankruptcy proceedings against the institution.
“It is insolvent and there is no evidence that the situation could change in the near future,” the Bank of Lithuania said.
“It is important to note that last year the institution made payments for the expenses incurred by other companies in the group of companies to which UAB PAYRNET belongs, resulting in an irrecoverable amount of more than €7m, which had a very negative impact on the financial position of the institution.”
The Bank of Lithuania now intends to apply to law enforcement authorities, requesting an assessment of whether criminal offences have been committed.
End of the line
The decision brings to a close a case that caused ripples beyond the Baltic state.
In early February, the Bank of Lithuania announced that it was limiting the activity of Railsr subsidiary PayrNet over concerns it was “grossly and systematically violating” money laundering compliance requirements.
Then in March, the situation looked dire for Railsr too. Reports surfaced that the UK Financial Conduct Authority was investigating the company, and there was also speculation that it may need to enter a pre-pack administration deal after a sale to African fintech Flutterwave fell through.
Eventually, the company was sold to a consortium of investors — D Squared Capital, Moneta VC and Ventura Capital — who recapitalised the company under the name Embedded Finance.
In a statement, a spokesperson for the consortium told VIXIO: “Any potential option to purchase UAB PayrNet and its EU EMI licence remained subject to approval by Bank of Lithuania. Today’s ruling removes that option.”
“The Bank of Lithuania’s ruling does not impact Embedded Finance’s UK Railsr customers,” the statement continues. “However, Embedded Finance will engage with Bank of Lithuania to understand its plans for UAB PayrNet’s EU customers and end-users.”
The spokesperson added that this decision was not unexpected as it is the outcome of a lengthy process that started before Railsr’s new investors and management team at Embedded Finance came on board.
“As such Embedded Finance has progressed alternative EU licence solutions and expects to be live in the coming weeks so that it can offer continuity of service to UAB PayrNet customers,” the spokesperson said.
“This solution is being put in place as part of the new team’s strategy to rebuild the business by bolstering governance and compliance while continuing to deliver world-class embedded finance solutions and seamless service to European customers.”
