Railsbank Technology Ltd, a London-based Electronic Money Institution (EMI), faces mounting financial and regulatory problems that may lead to its sale through a pre-pack administration. The company has reportedly raised more than $100 million from investors, but its regulated UK subsidiary has been under audit by the Financial Conduct Authority for several months, while its Lithuanian unit was barred from accepting new customers last month due to concerns over anti-money laundering and terrorist financing violations.
Railsbank had been in talks to sell itself to Flutterwave Inc., a Nigerian fintech firm, but the deal fell through. Now, the company is reportedly close to selling Railsbank through a pre-pack administration, which is a form of bankruptcy that involves lining up a buyer beforehand. The process allows a business with unsustainable finances to be sold as a going concern, rather than a standard administration where a company looks for a buyer after its collapse.
Railsbank has appointed restructuring firm Alvarez & Marsal to advise on the insolvency process, but a sale has not been finalized, according to sources familiar with the matter. Railsbank co-founder and CEO Nigel Verdon had described the firm in 2021 as a "near-unicorn" worth almost $1 billion. However, Railsbank's financial and regulatory issues have raised concerns about the stability of the EMI, leading to the possibility of insolvency and sale.
Railsbank's regulated UK and Lithuanian subsidiaries, which use the Payrnet brand, are licensed to process payments as electronic-money institutions. The fast-growing sector has attracted concern due to shoddy money-laundering controls, with regulators pushing for greater vigilance and control. Railsbank's problems are not unique, as many UK payment firms have been found to lack controls and pose an unacceptable risk to their customers.
The sale of Railsbank through a pre-pack administration can preserve the value of assets and save jobs, but concerns over the shoddy money-laundering controls in the EMI sector continue to be an issue. The Railsbank case highlights the need for EMIs to take their responsibilities to manage financial crime risks seriously and underscores the importance of greater vigilance and control in the EMI industry.
