The London Stock Exchange (LSE) is consulting on rules changes for AIM companies including the requirement for firms to report against a recognised corporate governance code. Responses to the LSE’s discussion paper released in the summer found a majority supported firms reporting against a code on a comply or explain basis.

Under the revised rules companies will need to disclose the recognised corporate governance code that the board of directors of the applicant has decided to apply, how the company complies with that code, and where it departs from its chosen corporate governance code provide an explanation of the reasons for doing so.

There will be no requirement of an annual update of these disclosures however the information must be kept up to date and the last date on which it was updated should be included. It is proposed that the changes will take effect from 30 June 2018 to allow AIM companies and nominated advisers with adequate time to prepare for the proposed change.

The LSE said: “We therefore expect AIM companies to ensure that meaningful information is provided to investors for them to be able to understand an AIM company’s approach to governance. In individual circumstances there are likely to be specific reasons why a company may choose not to comply and explaining this to investors should aid meaningful engagement. Investors are encouraged to engage with AIM companies on the quality of their corporate governance disclosures. It should be noted that the proposed obligation to report will be the responsibility of the AIM company.“

Commenting on the earlier consultation the LSE said that the responses largely supported its view that companies benefit from adopting appropriate governance measures, and recognised that, to be effective, these measures should be tailored to a company’s individual requirements and take into account its particular stage of development. The majority of respondents believed that the current principles-based approach provided flexibility and was not disproportionately burdensome or costly, a key consideration for small and medium growing companies.

It was decided not to introduce mandatory board composition requirements after the previous consultation produced differing views on this. However, the LSE said that AIM companies and nominated advisers needed to be aware that it would normally expect the board of an AIM company to include a chairperson, finance director and non-executive directors. Many respondents, the stock exchange said, considered that an AIM company, with the guidance of its nominated adviser, should be able to implement a board structure which is appropriate for its size and stage of development. Responses to this consultation should be sent on or before 29th January 2018 by email to aimnotices@lseg.com

Separately the LSE said that from 3rd January 2018, the Markets in Financial Instrument Directive (“MiFID II”) will introduce a new designation of “SME Growth Market” that operators of qualifying markets can voluntarily apply for. The LSE, as operator of the largest market for small and medium-sized growth companies in the EU, said it had applied to the Financial Conduct Authority for AIM to be registered as an SME Growth Market and expected to receive confirmation of final approval to take effect from 3 January 2018.

Last Updated: 15 December 2017