Incumbent Macquarie CEO Shemara Wikramanayake is seen ahead of a CEDA panel discussion about Australia's economic strategy in India in Sydney, Thursday, August 2, 2018. (AAP Image/Joel Carrett)
Macquarie chief executive Shemara Wikramanayake says that only a small part of the company's business, mainly settlement for its market-facing operations, would be affected by a delay in the award of licences © AAP/PA

Macquarie Group has warned that backlogs in licence applications with European regulators are forcing it to implement contingency plans to cope with the fallout in the event of a no-deal Brexit

The Australian investment bank said on Tuesday that it may not receive licences from regulators in Ireland and Luxembourg until the second quarter of the year, beyond the date when the UK could crash out of the EU without a transition deal.

Macquarie blamed the delays on a logjam created by the large number of companies applying for licences to enable them to provide financial services across Europe following Brexit. 

“Contingency arrangements are being put in place for a small number of clients who could be affected by this if the UK leaves the EU without a withdrawal or transition agreement on 29 March,” Macquarie told analysts in Sydney. 

Macquarie is one of Australia’s biggest investors in the UK. It has invested £40bn in infrastructure assets since 2005 and employs 1,500 people in Britain, mainly at the bank’s European headquarters in London. Nevertheless, it said it did not believe Brexit would be a “material event” for the group. 

Shemara Wikramanayake, Macquarie chief executive, told the Financial Times that only a small part of Macquarie’s business, mainly settlement for its market-facing operations, would be affected by a delay in the award of licences. She said the bank was working to temporarily re-route some client business in the event of a no-deal Brexit until new licensing arrangements were in place. 

“Processing is taking longer than expected. They have many, many people going through the re-licensing process in these different jurisdictions,” Ms Wikramanayake said. She added that Macquarie was committed to its UK operations regardless of Brexit. 

Banks and other financial institutions with European headquarters in London are scrambling to prepare for a possible no-deal Brexit by shifting assets out of the UK, setting up operations in other EU states and applying for licences from regulators. 

Banks are also concerned that hedge funds and asset managers are not fully prepared to continue trading in the event of a no-deal Brexit. Several of the largest lenders have appealed for help from British regulators after as few as 10 per cent of their clients returned paperwork that would shift their booking arrangements to new EU-based brokerages, allowing them to trade seamlessly if the UK leaves the bloc without a deal.

Industry experts said part of the reason for money managers dragging their feet could be a backlog of paperwork, as well as the assumption there will be a last-minute Brexit deal or some kind of regulatory forbearance giving the industry more time to iron out the details.

A report by EY in January found that some £800bn in staff, operation and customer funds had been moved out of the UK to Europe following the Brexit referendum in 2016. The consultancy warned that transfers could accelerate in the lead-up to the UK’s exit from the EU. 

Commonwealth Bank of Australia has applied for a licence to operate in the Netherlands while Westpac is seeking a full banking licence in Germany. However, neither has received approval from regulators yet.

QBE, an insurer with a European headquarters in the UK, is one of the few Australian financial companies to have already received a licence to operate in Europe. It moved early by announcing its intention to establish a subsidiary in Belgium in 2017, and was awarded a licence in May 2018.

Additional reporting by Stephen Morris

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