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iSignthis blames ASX for profit downgrade

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Suspended payments business iSignthis Ltd (ASX: ISX) slashed its FY 2020 EBIT guidance this morning from $10.5 million to $6.5 million and blamed the downgrade on the ASX for suspending its shares.

All its forecast EBIT numbers exclude what it labels as expenses associated with the regulator’s suspension. 

The shares have been suspended by the ASX’s listings compliance team since October 2 in a highly irregular scenario for a local stock market that is lightly regulated.

The securities regulator’s compliance team is investigating iSignthis’s historical disclosures, corporate governance, client base, and booking of revenues through the period up to June 2018.

In response to the ASX’s refusal to let it return to the boards, iSignthis commenced legal proceedings to have a federal court force the ASX to let it resume trade.  

The claim is on the basis the regulator has contravened s.792 of the Corporations Act in exercising its powers to operate a securities market. 

If successful the ASX’s compliance team will be humiliated, but if the court throws out iSignthis’s application it’s almost out of options other than to rely on the the securities regulator voluntarily lifting its suspension of the shares. 

SWIFT changes

Due to the suspension it also reported that that gross processing turnover volume (GPTV) is forecast to be flat for November and December 2019.

The GPTV slowdown is partly because it will no longer use SWIFT as a payment method as an Australian bank client when originating payments.

SWIFT is the globally dominant international interbank and counterparty payment platform and if iSignthis cannot use the network with Australian banks it suggests the business has run into serious operational problems.

The company provided no specific explanation for the SWIFT knock-back, other than to reference the “AML failures” of some Australian banks recently. 

It’s possible that some Australian banks have concluded they don’t want the associated risks of having iSignthis as a client given the well publicised problems over its historical client base. 

iSignthis claims it can put in place alternative arrangements to work around the SWIFT issue, although shareholders will probably be worried. 

For now there are two diverging narratives around a company painting an optimistic picture despite its shares being suspended by a regulator not satisfied it’s in compliance with listings rules. While its relationship as a client of Australian banks for SWIFT payments has also been halted, perhaps permanently.

Management’s decision to commence legal proceedings also suggests it has little confidence the ASX will voluntarily lift the suspension in the near future. The iSignthis drama is moving closer to an endgame and it may not be pretty. 

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

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