Background information of Fintech company Wise
Wise, formerly known as TransferWise, offers fast and cost-effective cross-border payments. Many customers use the platform to send large sums for property purchases. The company went public in 2021, listing on the London Stock Exchange at a £9 billion valuation. The move was seen as a positive sign for the UK's tech sector, which has often struggled to compete with New York as a hub for rapidly growing tech firms. However, since its IPO, Wise's shares have dropped by around 10%.
In the six months leading to September 2023, Wise processed £15 billion worth of payments, up from £13.2 billion in the same period the previous year. While business accounts, which total 385,000 out of the company’s 7.2 million users as of Q2, represent a small portion of its overall customer base, they are key drivers of revenue due to the larger transactions typically involved.
European customers, including both individual and business accounts, contribute nearly 30% of Wise's total revenue, with the UK accounting for approximately 20%. The US and other major markets make up the remainder of the company's earnings.
Wise’s shortcomings in putting in introducing money laundering controls
A review conducted by the National Bank of Belgium, which oversees Wise's operations in Europe, revealed in early 2022 that the fintech company had failed to provide proof of address for hundreds of thousands of its customers. The oversight raised concerns about Wise's compliance with regulatory requirements, though the company has since worked to address the issue.
Wise devised a remediation plan, which was subsequently approved by the regulator. The plan required the company to contact hundreds of thousands of customers within weeks to request proof of address. Customers who failed to provide the necessary documentation were informed that their accounts would be frozen.
The review underscores the challenges faced by fast-growing fintech companies like Wise, which must scale their anti-financial crime measures while maintaining a seamless user experience. Balancing regulatory compliance with efficient risk controls remains a critical hurdle for the sector.
Additionally, Wise reassigned some of its customer service staff to bolster its anti-financial crime function, leading to a surge in customer queries, according to two sources familiar with the company’s efforts. The remediation plan was rolled out shortly after Russia invaded Ukraine in early 2022, coinciding with the European Union's sanctions targeting individuals linked to Russian President Vladimir Putin’s regime. This added complexity to the process, as Wise navigated both compliance requirements and geopolitical turbulence. Furthermore, the group announced in October of that year that it had temporarily halted the acceptance of new business clients in Europe and the UK. The decision was in response to the heightened due diligence requirements imposed following a wave of sanctions related to Russia's invasion of Ukraine. The company acknowledged that it had not fully anticipated the extent of the additional compliance measures necessary in the current geopolitical climate, prompting the temporary pause in onboarding new clients.
Prior regulatory breaches and sanctions
In 2022, the United Arab Emirates' financial regulator fined Wise $360,000 for shortcomings in its anti-money laundering controls, including inadequate due diligence for high-risk customers.
In 2023, the UK's Office of Financial Sanctions Implementation revealed that Wise had allowed a company linked to an individual on the country’s Russia sanctions list to transfer £250. The company stated it had taken "immediate steps" to prevent such incidents from occurring again and vowed to continue investing in its compliance measures. However, it did not disclose the exact amount of investment.
Despite facing regulatory challenges and fines, Wise’s shares have performed well in 2023, climbing 26%. The fintech company has benefitted from higher interest rates, which have increased the revenue generated from cash held by customers. The firm reported a nearly threefold increase in its first-half pre-tax profits, which surged to £194.3 million. This boost came as the windfall from higher interest rates helped offset a decline in the volume of payment transfers made by clients.In October 2024, UK financial regulators imposed a £350,000 fine on Kristo Käärmann, CEO of payments company Wise, for breaching conduct rules and failing to inform them of "significant tax issues." The fine stems from Käärmann’s failure to disclose an outstanding tax bill of £720,495 related to capital gains on a $10 million share disposal in 2017. He did not notify HM Revenue & Customs (HMRC) about the share sale nor pay the resulting tax liability on time, which led to an additional £365,651 fine from HMRC. The news of the fine caused a minor dip in Wise’s stock, with the company’s shares falling 0.8% in October 2024.