Summary of the AIM Discussion Paper – Feedback Statement

The London Stock Exchange’s (“LSE”) Feedback Statement follows its April 2025 Discussion Paper on the future of AIM, incorporating insights from more than 60 respondents across investors, companies, nominated advisers, and industry bodies. Overall, respondents strongly endorsed AIM’s continued importance to the UK’s capital-raising ecosystem and supported reform to enhance its competitiveness and clarity of purpose. The LSE sets out a roadmap combining immediate actions and longer-term work with government and regulators.

Reasserting AIM’s purpose and role

Respondents emphasised the need to clearly differentiate AIM from the Main Market, particularly after recent Listing Rule changes reduced the perceived gap between the two markets. AIM should continue to serve growth-oriented, founder-led and entrepreneurial companies; a broad investor base; companies seeking a tailored regulatory environment; and issuers of varying sizes, including larger international companies.

Many felt AIM’s “risk capital” identity had been diluted. The buyer-beware principle with investors recognising higher inherent risk in exchange for higher potential reward should be restated. Investors often assume broader regulatory protections than the AIM Rules provide, overlooking that AIM does not replicate company law, financial services regulation or criminal law. Resetting expectations is important to preserve AIM’s flexibility and prevent misplaced pressure for regulatory intervention.

Access to capital: The central challenge

Respondents unanimously identified access to capital as AIM’s most urgent issue. Outflows from UK equities and conservative fund-mandate interpretations have disproportionately harmed smaller companies. FCA “Dear CEO” letters after the Woodford collapse contributed to fund managers restricting holdings of illiquid AIM stocks, reducing liquidity, valuations and institutional appetite. The FCA clarified that its guidance applied to all markets and did not single out AIM securities, stressing the need for holistic liquidity risk management.

Retail participation is acknowledged as essential for improving liquidity. The forthcoming Public Offer and Admission to Trading Regulations (POATR) should better enable retail involvement in AIM IPOs and fundraisings through enhanced forward-looking disclosures.

Tax incentives remain fundamental to AIM’s ecosystem. Respondents welcomed certainty on the extension of EIS/VCT schemes to 2035 but expressed serious concern about recent Business Property Relief (BPR) changes, which have damaged AIM’s attractiveness and reduced capital inflows. Greater long-term tax policy stability is required to support risk-capital formation.

Reporting burdens: Audit costs and regulatory pressure

Audit fees were cited as a top friction issue for AIM companies. Although most AIM companies are not Public Interest Entities (PIEs), the FRC’s Audit Quality Review framework and market misunderstanding of PIE criteria have led many audit firms to treat AIM audits as if PIE-equivalent. This has driven significant cost increases with average AIM audit fees rising by 127% between 2017/18 and 2022/23 together with reduced competition as firms withdraw from AIM audit work. Overly cautious internal processes, extensive risk-management layers, and “red-topping” by proxy advisers have further increased burdens. The FRC has confirmed that only AIM banks, credit institutions and insurers are PIEs and is developing a more proportionate supervisory approach for smaller entities.

Market conduct: Social media and bulletin boards

Respondents raised concerns about abusive online behaviour, misinformation, and attempts by some bulletin board users or influencers to manipulate AIM share prices. The FCA confirmed such conduct may breach MAR if it creates misleading impressions. The LSE emphasises zero tolerance and plans more referrals to enforcement bodies to deter harmful practices that deter companies and directors from joining AIM.

Nominated adviser model

The nominated adviser (Nomad) system received strong support as a core differentiator for AIM. Respondents value Nomads’ long-term, specialist advisory role, but believe the role has become overly compliance-led, with some duplication of other advisers, and an unduly risk-averse mindset. Increasing regulatory expectations and consensus-driven strict interpretations have deterred firms especially regional players and global banks from seeking or retaining Nomad status.

The LSE supports recalibrating the role back towards high-value corporate finance advice while retaining its essential gatekeeping function. Clarifying responsibilities among companies, Nomads and investors, and re-strengthening the buyer-beware principle, will help re-balance the role. The LSE will consult on a new Nomad technical note and adjust guidance in the interim.

Supported AIM rule changes and immediate derogations

Respondents backed several rule changes to enhance AIM’s competitiveness:

M&A and reverse takeovers

Acquisitions are key to AIM company growth. Current reverse-takeover rules impose disproportionate cost and delay. Effective immediately, where an acquisition does not fundamentally change the business, it may be treated as a substantial transaction rather than a reverse takeover, reducing friction while rule redrafting continues.

Director remuneration

AIM must attract top talent. Rule 13 (related-party transactions) will no longer require Nomads to opine on the fairness and reasonableness of director remuneration where commercial protections are adequate. Equity-based pay for non-executives is supported to align incentives.

Dual class share structures

Reflecting founder-led dynamics, AIM will immediately accept dual class shares meeting Main Market equivalency. In a buyer-beware market, disclosure, and not prohibition, is considered the correct approach.

Financial reporting flexibility

AIM will consider derogations allowing UK GAAP (FRS 102) instead of mandatory IFRS, incorporation by reference for historical financial information, and removal or reform of the costly working capital statement requirement.

Admission document reform

Respondents find the Admission Document lengthy, generic and declining in value. The LSE plans a digital, simplified, more investor-focused format, reducing cost and improving usability.

Secondary market enhancements

Proposals include enabling more direct access to the SETSqx order book, leveraging digital infrastructure for improved trading tools, and exploring trading halts for secondary fundraises thereby mirroring international markets and consequently reducing transaction risk and avoiding price volatility caused by leaks or rumours.

Next steps

The LSE will:

• engage with government on capital flows and tax incentives;
• adjust guidance and accept derogations to deliver immediate benefits;
• consult on a new AIM Rulebook in H1 next year;
• develop a redesigned digital Admission Document;
• explore secondary-market and trading-system innovation;
• continue advocating for proportionate audit regulation and improved proxy-adviser transparency

If you would like to discuss the implications of these changes for your business or investment strategy, please contact one of our team or email hello@geraldedelman.com.