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The Financial Conduct Authority (FCA) has imposed a £350,000 fine on Kristo Käärmann, CEO of Wise, for failing to notify the financial regulator of significant tax issues, marking a significant breach of senior manager conduct rules.
“A CEO, in particular, is expected to set an example to their staff and their customers,” the FCA said in the final notice regarding Käärmann, the Estonian born entrepreneur who founded the remittance giant.
The regulator fined Käärmann for breaching Senior Management Conduct Rule 4 by failing to disclose significant tax issues that could affect his fitness and propriety.
Under the Senior Managers and Certification Regime, senior managers such as Käärmann are expected to self-report any matters potentially affecting their reputation or that of their firms.
As CEO and a senior manager for Wise Assets UK Ltd and Wise Payments Ltd, Käärmann was required to inform the FCA of issues relevant to his role, aligning with the regime’s goal of reducing consumer harm and strengthening market integrity by holding individuals accountable.
According to the FCA, it is “imperative that relevant individuals give appropriate consideration to the fact that their actions may not only have an adverse reputational and/or regulatory impact on themselves, but also on their firms”.
“We, and the public, expect high standards from leaders of financial firms, including being frank and open,” said Therese Chambers, joint executive director of enforcement and oversight at the FCA.
“It should have been obvious to Mr Käärmann that he needed to tell us about these issues which were highly relevant to our assessment of his fitness and propriety.”
In a statement via the London Stock Exchange Group (LSEG) regulatory news service, Wise said that “the FCA has not made any adverse findings regarding Kristo's continued fitness and propriety to perform his current roles at Wise, nor found that he acted with a lack of integrity”.
David Wells, chair of the company, also reiterated the board’s confidence in Käärmann.
“The Board continues to take Wise's regulatory obligations very seriously. We're pleased that the FCA's conclusions are consistent with Wise's own assessment in 2021, and that the matter is now closed in its entirety,” he said.
"Following the inclusion of Kristo's name on HMRC's list in September 2021, the Board conducted its own investigation and assessed that Kristo remained fit and proper to continue in his roles at Wise. The Board also required him to take remedial actions to ensure that his personal tax affairs are appropriately managed and is satisfied that these actions were taken."
What happened?
In 2017, Käärmann made a $10m share sale that incurred a substantial capital gains tax (CGT) liability of £720,425.80.
However, he failed to disclose this to HM Revenue & Customs (HMRC), triggering an investigation in June 2020. Following the inquiry, HMRC determined the non-disclosure was deliberate, resulting in a £365,651 penalty issued in February 2021.
Despite knowing the tax liability, Käärmann did not alert the FCA to these issues for more than seven months, and therefore failed to comply with conduct requirements.
The FCA emphasised that Käärmann’s oversight was significant, as it affected his standing and the reputation of Wise's UK entities, Wise Assets UK Ltd and Wise Payments Ltd.
During this period, Käärmann also held the chief executive and executive director roles at Wise Assets UK Ltd and was a director at Wise Payments Ltd.
In September 2021, HMRC publicly listed Käärmann as a “deliberate tax defaulter”, prompting media coverage that eventually brought the matter to the FCA’s attention.
Upon learning of the oversight, the FCA reached out to Wise, who then confirmed the information.
During his interview with the FCA, Käärmann apparently explained that he did not believe that he needed to inform the authority of the tax issues because his dealings with HMRC were in his view a personal matter and therefore not relevant to his governance requirements for his roles at Wise’s subsidiaries.
However, in the final notice, the FCA asserts that “Käärmann did not properly put his mind to whether the Authority should have been notified of the tax issues, and that he should have considered his disclosure obligations more carefully”.
Commenting on the situation, Käärmann said that “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,” he said. “We continue to build a product and a company that will serve our customers and owners for the decades to come."
