Wise CEO Kristo Käärmann Fined £350,000 by FCA for Capital Gains Tax Disclosure Failure

Highlights:

• Wise CEO Kristo Käärmann fined £350,000 by the FCA for failing to disclose a capital gains tax liability.
• The penalty follows a previous £365,651 fine by HMRC for not notifying the tax authority of the CGT obligation.
• The FCA emphasized the importance of transparency from financial firm leaders.

Wise PLC (LSE:WISE) co-founder and chief executive Kristo Käärmann has been fined £350,000 by the Financial Conduct Authority (FCA) for failing to disclose a significant capital gains tax (CGT) liability linked to the sale of £10 million worth of shares. The penalty marks a crucial enforcement action by the FCA, underscoring the expectations placed on senior leaders in the financial sector regarding transparency and regulatory compliance.

Käärmann's failure to disclose the tax liability came to light following an earlier £365,651 fine by HM Revenue & Customs (HMRC) in 2021 for not reporting the CGT obligation in a timely manner. The case centers on Käärmann's breach of Senior Management Conduct Rule 4, which requires managers to "disclose appropriately any information of which the FCA would reasonably expect notice." The rule is designed to ensure that senior managers uphold high standards of conduct and integrity.

Regulatory Expectations and Käärmann’s Response

Following the resolution of the matter, Käärmann commented: "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. We continue to build a product and a company that will serve our customers and owners for the decades to come."

The FCA’s joint executive director of enforcement and oversight, Therese Chambers, highlighted the importance of transparency from financial firm leaders. “We, and the public, expect high standards from leaders of financial firms, including being frank and open,” she said. “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.”

The regulator’s stance reflects its ongoing efforts to ensure that senior management in financial firms adhere to the principles of accountability and transparency. The fine imposed on Käärmann serves as a reminder to industry leaders that they must fully comply with disclosure requirements to maintain trust in the financial system.

Background on the FCA's Conduct Rules

The FCA's Senior Managers and Certification Regime (SM&CR), under which Käärmann was penalized, was introduced to enhance the accountability of senior individuals in the financial services sector. The regime places specific obligations on senior managers, including the need to disclose relevant information to the FCA that could affect the regulator’s assessment of their fitness to perform their roles. Käärmann's failure to notify the FCA about the CGT liability led to a breach of these rules, resulting in the hefty fine.

The FCA’s enforcement action against the Wise CEO aligns with its broader regulatory approach of holding senior managers accountable for their actions and decisions. By imposing significant penalties for non-disclosure, the regulator aims to deter similar breaches in the future and encourage a culture of compliance within financial institutions.

Impact on Wise and Its Leadership

The fine against Käärmann raises questions about Wise's corporate governance practices and the responsibilities of its leadership team. While the company has not faced direct penalties in this case, the incident draws attention to the importance of robust internal controls and compliance processes to prevent such regulatory lapses.

For Wise, the situation presents an opportunity to reinforce its commitment to regulatory compliance and transparency. Käärmann’s acknowledgment of the matter and his focus on Wise's long-term goals indicate the company's intent to move forward while maintaining high standards of integrity and accountability.

The FCA's action also serves as a signal to other financial firms about the importance of senior managers' adherence to conduct rules. As the regulatory landscape evolves, firms will need to ensure that their leaders are fully aware of their responsibilities and comply with the necessary disclosure requirements.

Looking Ahead

With the conclusion of the FCA investigation, Käärmann and Wise can now concentrate on executing the company’s growth strategy. Wise continues to expand its global footprint in the financial technology sector, with a focus on providing cost-effective and transparent money transfer services. However, the regulatory challenges faced by Käärmann highlight the need for financial firms to prioritize compliance and transparency at all levels of management.

The £350,000 fine against Käärmann serves as a reminder of the critical role that senior managers play in upholding regulatory standards. For financial institutions, the case underscores the importance of strong governance practices and the need to foster a culture of compliance across the organization.