The UK’s financial regulator is investigating the cofounder of payments company Wise after he failed to pay his taxes.
Kristo Käärmann was included on HM Revenue and Customs’ public list of deliberate tax defaulters in September 2021, after failing to comply with his tax obligations. He failed to pay £720,495 for the 2017-18 tax year and received a fine of £366,000, the tax authority said.
Wise said on Monday that the Financial Conduct Authority (FCA) had “commenced an investigation regarding the regulatory obligations and standards to which Kristo is subject”, after it shared details of its own investigation. The company’s share price dropped by 2.8%.
Wise, formerly known as TransferWise until a rebrand last year, is one of London’s most prominent financial technology, or fintech, firms, after its shares floated on the London Stock Exchange in July 2021, in a boost for the City after several high-profile companies based in the UK opted for a New York listing.
Käärmann and his cofounder, Taavet Hinrikus, started Wise in 2011 after the former struggled to transfer money from a UK bank account to an account in their native Estonia without paying extortionate fees. They came up with a way to match transactions in Käärmann’s UK bank account with Hinrikus’s in Estonia, and spotted a gap in the market to offer the service to others, undercutting banks and money agents such as Western Union.
The regulator has the power to rule that Käärmann is not a fit and proper person to be a senior manager of an investment firm – a role he occupies because Wise offers stock trading as well as international payments. He has been approved by the FCA to be an executive director of a subsidiary authorised to carry out investment activity.
Wise reported the breach to the FCA, after hiring external lawyers to carry out its own investigation.
Käärmann and Hinrikus became paper billionaires for several months after the flotation, which valued the company initially at almost £9bn. Its value peaked at nearly £12bn in September, but has since fallen back to about £4bn, amid concerns over growing competition in cross-border payments and a general move away from fast-growing tech businesses by investors around the world.
Unlike some tech companies that have spent heavily on growth, Wise, which has said it will publish results for the year to the end of March on Tuesday, has been profitable in recent years. It made profit before tax of £41m in its last financial year, according to the prospectus listing its shares last summer.
Käärmann owns 19% of Wise’s shares, a stake worth about £740m, while Hinrikus owns 9%, valued at about £350m. Käärmann also receives a salary of £197,000 a year, significantly lower than the £3.6m average for companies in the FTSE 100, after Wise’s board rejected an “extraordinary performance” pay plan, according to the company’s prospectus when it listed its shares.
The founders and some early investors also control special “B” shares that give them more voting rights in company votes. Similar structures are regularly adopted by tech company founders in the US, but they are rarer in the UK where investors favour economic rights matching voting rights.
David Wells, the Wise chair, said: “The board takes Kristo’s tax default and the FCA’s investigation very seriously. After reviewing the matter late last year the board required that Kristo take remedial actions, including appointing professional tax advisers to ensure his personal tax matters are appropriately managed.
“The board has also shared details of its own findings, assessment and actions with the FCA and will cooperate fully with the FCA as and when they require, while continuing to support Kristo in his role as CEO.”
The FCA said it could not comment on individual cases.
