Kristo Käärmann, the CEO and co-founder of Wise, a popular money transfer firm, has been fined £350,000 ($454,000) by financial regulators in the U.K for failing to report an issue with his tax filings. Wise was founded in 2011 by Käärmann and his business partner Taavet Hinrikus. The Financial Conduct Authority (FCA) ordered Käärmann to pay the hefty penalty due to a breach of the watchdog’s senior manager conduct rule.
The FCA revealed that Käärmann neglected to inform the regulator about not paying a capital gains tax liability when he cashed in on shares worth £10 million in 2017. This breach of the Senior Management Conduct Rule 4, which requires disclosure of relevant information to the FCA, led to the substantial fine. Additionally, Käärmann was previously fined £365,651 by the U.K. tax collection agency HMRC in 2021 for late submission of tax returns during the 2017/18 tax year. His tax liability for that year was £720,495.
Despite these issues, Wise’s board of directors conducted an internal investigation in 2021 and found Käärmann to be “fit and proper” to continue in his role at the company. He was required to take remedial actions to ensure his personal tax affairs were managed appropriately. In response to the FCA’s fine, Käärmann stated that he remains focused on delivering Wise’s mission and achieving their long-term vision.
The FCA emphasized the importance of high standards for leaders of financial firms, expecting transparency and honesty from senior directors. Therese Chambers, joint executive director of enforcement and oversight at the FCA, stated that it should have been obvious to Käärmann that he needed to disclose these tax issues to the regulator. Käärmann’s acknowledgment of the issues and cooperation with the FCA helped him qualify for a 30% discount on the potential maximum fine.
Despite the fine, Wise reported a 17% increase in underlying income earlier this month, with a target of achieving an underlying profit before tax margin of 13% to 16% over the medium term. Analysts at British investment bank Peel Hunt raised their expectations for Wise’s full-year profit before tax by 15%, expressing confidence in the company’s growth trajectory. Käärmann and Hinrikus, both Estonian tech entrepreneurs, have transformed Wise from a startup to a leading payments disruptor valued at £7.4 billion.
In conclusion, while facing regulatory challenges, Wise continues to thrive under the leadership of Käärmann and the board of directors. With a commitment to transparency and compliance, Wise remains focused on serving customers and achieving long-term success in the financial services industry.
