Key facts
- Investors warned that relaxing reporting standards on London's AIM market could damage shareholder trust.
- A letter spearheaded by the Quoted Companies Alliance and signed by six fund managers was sent to LSE boss Julia Hoggett.
- The signatories stated the proposed changes would materially reduce investor engagement and damage trust.
- The London Stock Exchange proposed removing 'comply or explain' governance rules and easing listing processes.
- The LSE stated 70% of stakeholders support proposed changes to corporate governance disclosures.
Investors have cautioned that the London Stock Exchange's (LSE) proposed reforms to its junior AIM market could undermine shareholder confidence and deter institutional investment. In a letter addressed to LSE CEO Julia Hoggett, a coalition of investment bosses, led by the Quoted Companies Alliance (QCA), expressed concerns that removing the requirement for AIM-listed firms to adhere to a governance code would be counterproductive.
The letter, seen by City AM, stated that the proposed changes would "materially reduce investor engagement with AIM companies and significantly damage trust in the market." The signatories argued that in the current challenging investment climate, these alterations risk further diminishing institutional investor interest in AIM.
This intervention follows the LSE's consultation on proposals to reduce regulatory burdens for AIM-listed companies. Specifically, the LSE suggested eliminating the 'comply or explain' governance rules, which mandate that companies either adopt specific governance standards or provide justifications for non-compliance. Additionally, the exchange proposed removing the need for a working capital statement and simplifying the process for companies to move from the main market to AIM.
The consultation is part of a broader effort to revitalize the AIM market, which has experienced a decline in new listings and an increase in de-listings in recent years. The number of companies on the market is reportedly at its lowest point this century, with 88 companies leaving last year.
While acknowledging the LSE's overall vision for a more dynamic and frictionless AIM market, the signatories emphasized that these efforts could be negated by weakening governance expectations. They argued that a standardized corporate governance requirement is not always beneficial for AIM companies or investors, and that firms often feel compelled to comply rather than explain their approach.
A spokesperson for the London Stock Exchange stated that stakeholders have responded positively to the consultation, with an initial review indicating 70% support for the proposed changes to corporate governance disclosures. The LSE aims to address market friction to ensure AIM's continued success, acknowledging feedback from companies, investors, and advisers.