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Directors' know how is a monthly article, which highlights key rule changes, proposed changes and market updates so that you know what is coming down the track.

AIM companies must apply a recognised corporate governance code from September 2018

London Stock Exchange has announced that all AIM companies will be required to apply a recognised corporate governance code and explain how they do so from 28 September 2018. 

The updated AIM Rule 26 contained within the AIM Rules for Companies now states that:

Each AIM company must from admission maintain a website on which the following information should be available, free of charge: 

Details of a recognised corporate governance code that the board of directors of the AIM company has decided to apply, how the AIM company complies with that code, and where it departs from its chosen corporate governance code an explanation of the reasons for doing so. This information should be reviewed annually and the website should include the date on which this information was last reviewed.

Although the implementation of this requirement will take effect from 28 September 2018, all new applicants from 30 March 2018 will be required to state which corporate governance code they intend to follow. However, these companies will have until 28 September 2018 to comply.

An updated QCA Corporate Governance Code will be published in April 2018. All QCA members will receive a free copy and will have access to member-only training and supporting materials to aid implementation.

To read more about the AIM rule change and the QCA Corporate Governance Code, please see here.


The Market Abuse Regulation – Two years on

The Financial Conduct Authority’s (FCA) Primary Market Oversight Department attended a Quoted Companies Alliance (QCA) Primary Markets Expert Group meeting in February 2018 to discuss the UK’s progress in implementing the Market Abuse Regulation (MAR), which came into force on 3 July 2016.

The FCA were particularly keen to emphasise its willingness to engage more regularly with small and mid-size quoted companies, so that it could better understand the aspects of MAR which these companies find the most challenging to comply with.

Enforcement of MAR

The FCA explained that it would be increasing its level of enforcement activity in the coming months. It reported a higher number of enquiries and investigations regarding MAR disclosure obligations.

The root causes of many enquiries were atypical market movements including, but not necessarily limited to, volume changes and fluctuations in share prices. The FCA explained that it scrutinised a range of specialist media outlets to gauge and assess the context of any unusual market events, noting that some economic sectors were more prone than others to such fluctuations.

Insider lists

The FCA acknowledged that recognising what is inside information can be challenging for small and mid-size quoted companies to determine. Citing a speech by Julia Hoggett, the FCA’s Director of Market Oversight, it noted that “compliance with MAR is a state of mind”, which depended on pragmatic situational judgements instead of following prescriptive rules. It was therefore difficult to provide clear guidance on this.

The QCA Primary Markets Expert Group and the FCA observed that although AIM companies were now exempt from the requirement to create and maintain insider lists – since AIM had been granted SME Growth Market status under MiFID II on 3 January 2018, which allows for a more flexible regulatory regime – it was unclear whether companies were aware of such the exemption and/or would change their behaviour.

Many members of the Primary Markets Expert Group noted that many issuers were including all insiders in their lists, despite the fact that this is not necessary.

The FCA clarified that issuers were not required to have a disclosure committee, although some companies found such committees useful. Instead, ensuring that the correct documentation was correctly completed should be a company’s top priority. There was consensus among the Expert Group that small and mid-size quoted companies were slowly coming to terms with how to comply with the requirements.

Persons discharging managerial responsibilities (PDMRs)

Although AIM companies appear to define a PDMR in a variety of different ways, QCA Primary Markets Expert Group members reported that they had not received any queries from their clients.

Regarding persons closely associated (PCAs), the FCA emphasised the importance of following a sensible approach – particularly with regards to children, who should not be considered PCAs if they would clearly be unable to act on any information shared with them.

Market soundings

The QCA Primary Markets Expert Group noted that there were fewer soundings taking place since July 2016. Neither the Expert Group nor the FCA were clear on whether this was specifically due to the MAR requirements or whether it is due to wider market conditions.

The FCA suggested that some principles have not been properly understood, which could have influenced the decline in the number of market soundings. It added that some of the confusion originates from different compliance strategies from the buy-side market participants and that, as a result, some investors are refusing to be made insiders until very late on in a transaction.

Going forward

Ultimately, the FCA recognises that MAR continues to be a work-in progress for many small and mid-size quoted companies. Therefore, as the way the FCA supervises capital markets evolves, we will continue to maintain a dialogue with them to ensure that our members’ concerns are heard.

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