Other possible changes on which the Exchange is consulting include:

• Requiring nominated advisers to have formal confidential discussions at an early stage with the Exchange about a candidate’s suitability for admission to AIM. The Exchange proposes to codify its existing practice of early discussions where a company’s admission raises potential issues, and to extend this to all proposed admissions.
• A non-exhaustive list of issues that may give rise to concerns for a nominated adviser where a company is seeking admission to AIM. These would include concerns about particular directors or major shareholders; an unclear rationale for seeking admission; regulators’ formal criticisms of directors or the company; the company’s rejection by other trading platforms; concerns over the company’s structure or business model; and where the group only has economic exposure to its material assets via potentially risky contracts, rather than outright ownership.
• A minimum level of equity fundraising for new applicants at the time of admission to AIM. A £6 million minimum already applies to investing companies (i.e. non-trading businesses). The Exchange seeks feedback on whether it should extend this to all AIM applicants or, alternatively, to only those that are non-revenue generating businesses at admission. It is also interested in views on whether the minimum level should be set at £6 million or a lower (or higher) amount. To encourage institutional investor participation, companies would be expected to raise the funds from unconnected parties.
• Whether the current corporate governance requirements are effective or if companies should be required to report annually against a specific governance code, such as the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies.
• Possible automatic fines for breaches of the AIM Rules, and the level of these fines. The Exchange is also seeking views on whether it should make other changes to the AIM Disciplinary Procedures and Appeals handbook.
• Whether there is anything more the Exchange should be doing to educate market participants as to the limits of its remit as a regulator.

These proposals, taken together, could amount to a significant step up in AIM regulation if implemented. This would be unusual for a market that has traditionally balanced light-touch regulation with investor protections, and emphasised the importance of disclosure rather than prescriptive rules. However, it is important to note that the ideas mooted in the paper are still under discussion and the Exchange’s object in publishing them at this stage is to receive feedback from the AIM community and the wider market. Those interested are encouraged to make their views known as soon as possible.

The proposals are contained in Discussion Paper – AIM Rules Review, and the Exchange seeks responses by 8 September 2017. Reed Smith is preparing a formal response to the consultation paper and will be arranging a small roundtable event on 6th September to discuss the proposals. If you would like your views to be included in the paper or if you would like to attend our event, please contact a member of our ECM team.

Client Alert 2017-171