What is Wise?
TransferWise or Wise is a London-based Fintech company that was started by former Skype employee Taavet Hinrikus alongside financial advisor Kristo Käärmann. Wise was formed to provide a platform to make affordable cross-border transactions as an alternative to the expensive international money transfer services provided by major banks. It has been likened to the infamous ‘hawala‘ system due to the movement of money outside of the mainstream banking network.
Wise has been extremely popular among individuals and businesses alike since its inception, with almost users transferring almost €10 million in the platform’s first year alone. Users preferred to use Wise as it provided them with a safe and secure platform to send money to loved ones abroad or easily send salaries to overseas workers, with charges reported to be up to 90% cheaper than those levied by the UK’s top four banks.
Due to increased costs and the loss of significant revenue if transaction costs were to be decreased to compete with Wise, banks could not keep up with the money exchange platform, which was slowly becoming the number one platform for international transactions. The company recently went public and was listed on the London Stock Exchange with a valuation of $11 billion.
It is worth noting that despite showing staggering profits since 2017, the company suffered financially over the past year due to investors in the stock market preferring to pull out of investing in growth stocks, which have caused its price to fall by more than 50%. The fall in its share price may also be due to the investigation against its CEO for defaulting on taxes.
Allegations against Wise
In July of 2022, the Financial Conduct Authority cracked down on Wise CEO Kristo Käärman for failing to pay taxes for the financial year 2017-2018. Käärman reportedly skipped out on paying close to £720,000, causing the authorities to flag him down for deliberately defaulting on taxes.
However, the company recently found itself in trouble after its branch in Abu Dhabi; Wise Nuqud was flagged by Abu Dhabi’s Financial Services Regulatory Authority (FSRA) for failing to comply with necessary AML requirements and not establishing the required AML checks in its systems. The authorities pointed out the platform’s negligence in conducting background checks behind transactions made by users who were previously flagged as high risk and potentially aiding money laundering or similar financial crimes.
Though the FSRA stated that it did not find any actual instances of money laundering occurring through the platform, however, it still flagged the company due to its worldwide influence and negligence when it came to following adequate AML procedures, which could have devastating consequences if left unresolved and land the company in deeper trouble.
A spokesperson for Wise claimed that the company was doing its best to provide its customers with a safe and reliable platform for all their cross-border transfer needs and that it would be investing its resources into strengthening its existing AML system to comply with the FRSA’s standards.
Wise itself did not dispute the claims made by the FSRA and cooperated with the authorities to deal with the problem at the earliest, prompting them to reduce the previously decided-upon fine of $450,000 to $360,000.
Wise has agreed to pay the penalty as well as work with AML experts to review its policies and systems to create a better transacting experience for all.
Conclusion
The UK-based cross-border transaction platform Wise was recently flagged by Abu Dhabi’s Financial Services Regulatory Authority (FSRA) for its shortcomings in complying with the country’s strict AML regulations. The company reportedly allowed previously flagged high-risk users to carry out transactions without verifying the end sources, which could have led to disastrous consequences if left unresolved. The FSRA initially fined the company $450,000, which it later reduced to $360,000 as Wise accepted its weaknesses in the system and pledged to rectify them at the latest.
