Wise CEO Fined by UK Regulator for Non-Disclosure of Tax Liability
The Financial Conduct Authority (FCA) in the UK has fined Wise CEO and founder Kristo Kaarmann a total of £350,000 ($453,565).
Reuters reported that the Wise CEO was fined after he violated the Senior Management Conduct Rule 4 when he failed to notify the regulator of a £365,651 penalty he paid to HM Revenue and Customs (HMRC) in February 2021.
Kaarmann had attracted the penalty after he failed to inform the tax authority of a capital gains tax liability after he sold shares worth $10 million in 2017.
Appearing on the Tax Defaulters List
The HMRC had added Wise CEO to its public list of tax defaulters in September 2021. Kaarmann appeared on this list alongside sole traders and takeaway restaurants. The list comprises people who deliberately default on tax payments.
The listing matter and the circumstances surrounding it influenced FCA’s assessment of Kaarmann’s fitness and propriety. According to the UK financial regulator, Kaarmann was aware of his tax issues for over seven months.
However, he failed to appreciate the weight of these matters and did not inform the FCA about them. The FCA emphasized the need for transparency from fintech leaders.
“We, and the public, expect high standards from leaders of financial firms, including being frank and open.” FCA Joint Executive Director for Oversight and Enforcement, Therese Chambers said,
Cooperation with the FCA
UK’s fine on Wise CEO brings to an end years of navigating the regulatory difficulties brought about by Kaarmann’s share sale. Although the FCA has the power to declare that Kaarmann is not a proper director of a regulated business, the UK regulator fine was based on the consideration that Kaarmann’s actions were careless, not reckless or deliberate.
The HMRC has fined Kaarmann for failing to open two letters informing him of the tax liability. The Wise CEO cited his tight travel schedule as the reason why he had missed the letters. When he realized his mistake, Kaarmann settled the penalty immediately but did not communicate the matter to the FCA.
Originally, the HMRC had fined Kaarmann a total of £500,000. However, the CEO received a 30% discount for demonstrating cooperation at an early stage.
“After several years and full cooperation with the FCA, we have brought this process to a close. I remain focused on delivering the mission for Wise and achieving our long-term vision for being ‘the’ network for the world’s money, ” Kaarmann said.
Wise Chairperson, David Wells says the matter is now settled and that the company has ensured that Kaarmann tax affairs are in order. The FCA regulates Wise since it is a business that offers electronic money services and share dealing.
Background to Wise Tax Compliance Issue
Kaarmann conceptualized the Wise fintech idea while working for an accountancy firm in London. He co-founded the fintech company with Taavet Hinrikus in 2011.
At the time, the fintech company was known as TransferWise. However, Kaarmann was confronted with high fees when he wanted to transfer bonus payments to his country, Estonia.
To avoid the hefty bank fees, Kaarmann worked with Hinrikus to match financial transactions in the two countries.
Wise grew fast to become the go-to fintech solution in London. In 2021, the company’s float grew to a point where it made its co-founders billionaires. Today, Wise valuation stands at £7.5 billion. Kaarmann has an 18% stake in Wise and an estimated net worth of £1.7 billion mostly from his stake in the fintech company.
