The London Stock Exchange (LSE) has published a “Discussion Paper: Shaping the Future of AIM” (Paper) in which it aims to provide all stakeholders with the opportunity to provide their feedback on the overall functioning and positioning of AIM, given its vital role in both the UK capital markets and the UK economy.
As stated in the Paper, AIM remains a key component of UK capital markets offering for UK and international companies and remains the most successful growth market in the world, seen by many as the benchmark for growth markets globally. Despite Brexit, the Covid-19 pandemic and significant changes to the UK regulatory landscape, the LSE notes that (i) AIM has remained resilient and over the past five years, 53 per cent. of all capital raised on European growth markets has been on AIM and (ii) in 2023 AIM companies (including their supply chains) contributed approximately £68 billion Gross Value Added to UK GDP and over 778,000 jobs.
The LSE recognises that recent market conditions have been challenging and that smaller companies have been disproportionately impacted by headwinds that have affected public and private markets around the world. The Paper proposes various changes with the stated aim of enhancing capital access and liquidity, reducing costs and streamlining processes. Section 2 of the Paper solicits feedback on the functioning and overall market framework of AIM and Section 3 of the Paper proposes specific changes to the AIM Rules which could be beneficial to reflect evolution of the regulatory environment and reduce barriers to execution. Both sections contain sets of questions, answers to which will assist AIM with evolving in a way that ‘best serves its users, including the risk-takers, the entrepreneurs and wealth creators who will drive future growth and prosperity, and the investors that enable, and benefit from, the companies driving that growth’.
Market Framework – Driving Growth and Regulatory Design of AIM
Section 2 outlines the LSE’s commitment to enhancing the AIM market by increasing capital flow, enhancing liquidity and ensuring a competitive regulatory landscape.
Driving Growth
The LSE’s top priority is to increase the flow of capital into AIM and to ensure that capital comes from a diverse range of sources to maximise liquidity. Recent initiatives, such as the Mansion House Compact and the Government’s Pensions Investment Review, are expected to help unlock more domestic capital investment in the UK and increase investment into AIM companies. The Paper also highlights the importance of fiscal incentives, including Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT), ISA inclusion, and Business Relief, in encouraging investment into AIM.
The Paper considers the level of liquidity in the secondary market to be a vital factor in the availability and cost of capital for issuers. In order to stimulate liquidity, the LSE has successfully campaigned for AIM shares to be eligible for ISAs and the abolition of stamp duty on the trading of AIM securities, and more recently removed fees for retail investors to access real-time market data, becoming the first major primary exchange to do so.
The LSE also expects that the new Public Offers and Admission to Trading Regulations (POATR) will further enhance liquidity by making it easier for AIM companies to include individual investors in capital raising transactions – and consequently increase the diversity of their shareholder register.
Regulatory Design of AIM
In LSE’s view the AIM regulatory model, which includes the expertise of a nominated adviser and a principles-based rulebook, remains critical to AIM’s success. The new FCA rules pursuant to the Public Offers and Admission to Trading Regulations (POATR), which are expected to be published in the summer, will allow AIM companies to enable retail participation for fundraising at admission and on market. It will also mean that AIM companies can benefit from the regulated market liability regime for forward-looking statements, encouraging greater disclosure about future prospects.
Nominated adviser
The nominated adviser supports companies with advice and guidance, aligning the needs of key stakeholders and providing flexibility to founders, management, and boards. This framework ensures that companies can focus on their growth while investors receive the necessary disclosures to evaluate risks and opportunities.
The Paper seeks views on how to evolve the nominated adviser role to reduce costs and streamline processes. LSE notes that market practice has developed around the nominated adviser obligations which, in some areas, increases costs of the role but may not add commensurate value. In addition, the LSE looks to address duplicative work between the nominated adviser, lawyers, and reporting accountants with the aim of ensuring that the costs associated with AIM admission and ongoing compliance are proportionate and add value for companies and investors. For example, the LSE notes that post-admission, company disclosure is subject to the UK Market Abuse Regime which is predominantly advised upon by lawyers. The Paper seeks views on whether the nominated adviser’s role in disclosure under AIM Rule 11 (General disclosure of price sensitive information) is duplicative and whether instead the nominated adviser’s role can be developed to focus on the valuable corporate finance input in the disclosure discussions with other advisers.
Corporate governance
Although the LSE recognises that a one size fits all model is not appropriate, it has received feedback that not all AIM companies feel that they have an appropriate choice for their stage of development. The Paper welcomes views on whether, as an alternative to choosing a corporate governance code, the LSE could provide a simplified approach and what that might look like.
Development of the AIM Rules
Section 3 of the Paper sets out proposed changes to the AIM Rules aimed at reducing costs and administrative burdens for companies while maintaining investor confidence. An overview of the proposals is set out below.
AIM admission documents – Several changes to the content and format of AIM admission documents. The LSE suggests offering an alternative simplified admission document, with clear labelling to signpost the increased level of risk (comparative to a standard admission document) would then give investors a choice depending on their risk appetite. It also considers allowing incorporation of certain information by reference, for example historical financial information, memorandum and articles of association and competent person’s reports.
Working capital statements – Alternative approaches to working capital disclosure, including working capital statements in line with the AIM Designated Market (ADM) route, whereby the company’s directors confirm that they have “no reason to believe” that the working capital available to it or its group will be insufficient for at least twelve months from the date of its admission. The Paper also seeks views on an entirely different approach whereby there could be specific circumstances where no working capital statement would be required (for example for research and development companies or mining and oil and gas exploration companies, in respect of which the requirements for funding are inherent in the nature of the business and where the requirements and timing for future funding is disclosed).
Reverse takeovers – Amendments to the reverse takeover provisions to support companies to grow their businesses without incurring unnecessary costs, in particular a more flexible approach to determine whether to dispense with an admission document. The Paper suggests allowing AIM companies to disclose information required by Schedule Four of the AIM Rules instead of producing an admission document in certain circumstances (in particular where there is no fundamental change of business, even if the AIM company is making an acquisition that is larger than itself).
Accepted Accounting standards – Introducing greater flexibility to recognise a wider set of local accounting standards than those permitted under AIM Rule 19 (Annual accounts), to attract international growth companies to AIM. The Paper seeks views on whether the LSE should permit companies to use any local accounting standard thereby allowing investors to consider the risk profile, or whether local accounting standards should be limited to a prescribed list based on equivalency to International Accounting Standards.
Admission requirements for second lines of securities – Removing the requirement for an admission document for second lines of securities, proposing that the required disclosure regarding the rights of the second line of securities can be set out in shareholder circulars or provided via market notifications.
AIM Designated Market (ADM) route – Streamlining the nominated adviser’s work for companies utilising the ADM route by relying more on the company’s existing public market disclosures, expanding the list of eligible markets, and revising the market capitalisation requirement (currently £20 million) and the admission period requirement (currently 18 months).
Dual-Class Share Structures – Permitting admission of dual-class shares on AIM, by replicating the structures permitted on the Main Market, as the dual-class shares structures align with the founder-led nature of growth companies.
Related Party Transactions – Changes to AIM Rule 13 (Related party transactions) to reflect existing shareholder safeguards and reduce the burden on companies who are required to consult with their nominated adviser and to provide publicly a fair and reasonable statement. For example, the Paper suggests exemptions for transactions related to employee share schemes, long term incentive schemes and directors’ indemnities. In addition, the Paper welcomes views on whether the question of director’s remuneration should be left to the company’s corporate governance arrangements rather than being captured by AIM Rule 13. Alternatively, whether AIM Rule 13 protections should be retained in limited circumstances for directors’ remuneration, for example, where remuneration is in the form of bonus/share option arrangements that are not contingent on business-related performance criteria.
Class tests – Updating the class tests used to classify transactions and providing greater clarity in their application. LSE suggests changing the threshold for substantial transactions to 25 per cent. and removing the Profits test for AIM transactions (other than with respect to related party transactions). It also proposes a pro-rated Gross Capital calculation for investing companies to reflect the fact that a company is only acquiring a minority stake and therefore will not be consolidating or assuming responsibility for any of the target company’s liabilities.
Next Steps
The Paper forms part of a wider debate on the future development of AIM and stakeholders are invited to provide feedback on the proposals to AIM Regulation (aimnotices@lseg.com) by 16 June 2025.
AIM has been described as the “Jewel in the Crown” of London capital markets, and publication of this Paper is a welcome initiative by the LSE, showing its commitment to invest in AIM. As stated in the Paper, whilst the AIM Rules have generally remained unchanged in recent years, market practice of additional due diligence, compliance requirements and record keeping has evolved, resulting in longer AIM admission documents and annual reports. In turn, this has contributed to increased costs of being admitted to AIM. Unfortunately, it has not led to a corresponding increase in capital or liquidity being made available to AIM companies. This imbalance will need to be addressed in order for AIM to continue being a central feature of UK capital markets.
