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A major UK auditor has resigned from working with eMerchantPay, an acquirer for “high-risk” merchant categories, due to concerns about the company’s governance practices.
In a letter to eMerchantPay, Grant Thorton said it has cut ties with the firm after viewing its financial statements for the year ending August 30, 2022.
Grant Thornton did not reveal the exact nature of the “concerns” that had arisen from these statements, but said that it was unable to obtain “supporting information” for certain transactions.
Moreover, when Grant Thornton staff sought further information on eMerchantPay’s evaluation of its accounting standards, this information was not provided.
Grant Thornton also said it was unable to obtain supporting information on eMerchantPay’s evaluation of its legal and compliance risks.
“Following this process, we have been unable to conclude whether the accounting for the transactions is appropriate and whether there has been a breach of applicable laws and regulations,” said Grant Thornton.
“Given the significance of these matters, we do not consider it appropriate that we continue to act as the companies’ auditor.”
The letter sent to eMerchantPay ensures Grant Thornton’s compliance with Section 519 of the Companies House Act, which requires that auditors provide a written statement to a client before withdrawing their services, including reasons for the withdrawal.
Red flags over a growing business
The loss of Grant Thornton, the fourth largest auditor of the UK’s top 2,500 privately-held companies, will come as a blow to eMerchantPay.
It will also catch the attention of UK regulators, given that Grant Thornton had previously worked with eMerchantPay and had audited its most recent financial statement (ending in August 2021).
In that statement, eMerchantPay reported a blowout year, driven by soaring growth in payments volume across its three main verticals: PSP activity; acquiring activity; and e-money activity.
Compared with the previous year, PSP processing volume increased 85 percent, acquiring volume increased 127 percent and e-money volume increased almost 1,800 percent.
Buoyed by this growth, eMerchantPay gross profit jumped 34 percent in 2021 to $47m.
“2020/21 has clearly been a year of achievement, and the Board recognises that some of this is due to a market surge in cryptocurrency activity in Q2 of 2021,” the company wrote in its financial statement.
“But with the ongoing delivery of existing growth plans and new opportunities being developed, the Board are confident that the Group is well positioned to continue its growth and development in the coming years.”
Elsewhere in the statement, the company said it plans to maintain its volume and revenue growth through further international expansion, including in India, where its subsidiary has applied for a payments aggregator license.
Brexit is also listed as a key issue for eMerchantPay in the statement, as it led to the restructuring of its e-money and payment service activities within the EU.
Up to December 2020, the firm had passported these services to Europe by using its UK permissions from the Financial Conduct Authority (FCA).
In January 2021, after the passporting window closed, eMerchantPay entered into an arrangement with a Lithuanian entity, Phoenix Payments, to continue offering its services in the European single market.
The company noted, however, that from January 2021 to December 2021 there was a “risk in certain jurisdictions” that the local supervisory authority may consider that eMerchantPay business did not comply with national regulations.
“To date, it has not received notice from any supervisory authority of any such potential non-compliance,” it added.
Since 2002, eMerchantPay said it has processed billions of dollars of payments for merchants in sectors such as retail, travel and hospitality, and higher-risk sectors such as FX, gambling and crypto.
The FCA granted eMerchantPay its licence as an e-money institution (EMI) in 2011.
