Following the Financial Conduct Authority's (FCA) ongoing campaign to enhance the competitiveness of the UK’s capital markets with recent reforms to the listing rules and the prospectus regime, the London Stock Exchange (LSE) has published a discussion paper on the future of the Alternative Investment Market (AIM).
The discussion paper reflects on some of the key elements that make up AIM’s regulatory framework and outlines key areas of potential change, including specific changes to the AIM Rules for Companies (the AIM Rules). The paper seeks feedback from market participants by 16 June 2025.
Any proposed changes will seek to realign AIM as a junior market catering for the needs of growth companies following the introduction of a more permissive regime for the Main Market, which narrowed the regulatory differentiation between the two markets. The overall objective, however, is to enhance liquidity and attract a wider range of investors to AIM.
Key Potential Changes
1. The Role of the Nominated Adviser (Nomad)
Despite viewing the nominated adviser model as 'central to AIM’s distinctive regulatory framework and its success,' given the increasing costs for companies and the overlap between the work of the Nomad and a company’s other professional advisers, the LSE invites feedback as to whether and how the AIM admission process (looking at the roles of various advisers) can be streamlined.
It will be interesting to see the feedback and any proposed changes with respect to the role of the Nomad vis-à-vis other advisers – in our experience, Nomads are under increasing pressure to comply with growing regulatory burdens in a market with higher-risk companies which leads to more work being done by the Nomad and higher costs for the company.
2. Overlap Between the UK Market Abuse Regulation (UK MAR) and AIM Rule 11
The discussion paper questions whether the role of the company’s Nomad and its lawyers with respect to disclosure under UK MAR (typically advised on by lawyers) and AIM Rule 11 (typically advised on by the Nomad) is duplicative and how these roles can be separated, suggesting that the Nomad’s role can be focused more on corporate finance input.
3. Corporate Governance Model
While AIM companies have a choice of which corporate governance code to adopt, existing codes may not be appropriate for all stages of a company’s development. The LSE seeks feedback on whether there is an alternative simplified approach to existing corporate governance codes.
4. Admission Documents (AIM Rule 3)
The LSE is seeking feedback from investors on areas of admission documents that they don’t consider to be of value to their investment decisions, questioning whether a simplified admission document should be available as an option.
The discussion paper also suggests streamlining admission documents by incorporating more information by reference (e.g. Competent Person’s Reports; Articles of Association; and Historical Financial Information). This would, in our view, simplify the process of preparing an admission document.
5. Working Capital Statements (AIM Rule 3, Schedule Two)
Given that companies seeking admission to the Main Market no longer require a ‘clean’ working capital statement, the LSE is considering replicating this regime for AIM companies but is seeking views on alternative options such as the approach required for the AIM Designated Market (ADM) route. The ADM route requires directors to confirm that they have “no reason to believe” that the working capital available will be insufficient for at least twelve months from the date of admission.
Alternative options may reduce the costs associated with preparing a working capital report.
6. Reverse Takeovers (AIM Rule 14)
The LSE is seeking feedback on whether consent of shareholders and publication of an admission document is necessary in all circumstances with the suggestion that these requirements can be relaxed where there is no fundamental change to a company’s business.
An appropriate alternative may be for disclosure to be limited to the information required by Schedule Four of the AIM Rules.
7. Annual Accounts (AIM Rule 19)
The LSE is considering introducing greater flexibility to recognize a wider set of local accounting standards which may reduce costs for companies seeking admission.
8. Admission of Second Lines of Securities (AIM Rule 3)
The LSE is seeking feedback on removing the requirement to produce an admission document with disclosure being limited to the rights of the second line of securities (which may be set out in a shareholder circular rather than an admission document).
9. AIM Designated Market (ADM) Route (Schedule One)
The LSE acknowledges that the ADM route is not always less onerous as it was intended to be and the Nomad’s work in practice is usually equivalent to that undertaken for a standard AIM admission. In our experience, the same assessment can be made in relation to the legal due diligence workstream required for this route.
The LSE is seeking views on how the Nomad’s work may be reduced and welcomes suggestions on other changes/developments that can be made to the ADM route.
10. Dual-class Share Structures
The LSE considers it appropriate to permit the admission of dual-class shares on AIM to align with the founder-led nature of growth companies.
11. Related Party Transactions (AIM Rule 13)
The LSE is considering whether exemptions to AIM Rule 13 could be introduced where there are other safeguards in place for shareholders. In the case of directors’ remuneration, the LSE is seeking views on whether this should be left to a company’s Remuneration Committee rather than falling under AIM Rule 13.
12. Application of Class Tests (AIM Rules 12, 13, 14, 15, 19 and Schedule Three)
Given that the recent changes to the Listing Rules have increased the threshold of a substantial transaction to 25% on the Main Market, the LSE considers that AIM companies should be subject to the same threshold. In our view, this is a sensible suggestion as AIM companies should not be subject to a higher standard than Main Market companies.
The LSE is seeking views on whether the Profits test should be removed (except in relation to related party transactions) and whether a pro-rated Gross Capital calculation should be used where a company is only acquiring a minority stake.
Conclusion
The LSE intends to engage with the market following feedback on the discussion paper. Any proposed changes to the AIM Rules will be put forward to the market for consultation.
Although AIM has been described as the ‘Jewel in the Crown’ of London’s markets, it is clear that regulatory changes are required to ensure that it remains the most successful growth market in the world, given the increasing costs associated with admission to AIM and compliance with ongoing regulatory obligations.
The LSE’s engagement with the market and any resulting changes should reduce the regulatory and cost burden on AIM companies while ensuring that investors receive adequate disclosure to assess the risk of their investments.
