March 13, 2009

Regulation of AIM: Survey Reveals Mixed Views

The 13th annual Taking AIM survey by leading mid-tier accountants Baker Tilly and international law firm Faegre & Benson LLP reveals mixed views amongst AIM companies and investors on the effectiveness of regulation for the sector.

Of the 150 AIM companies and investors surveyed, 86% of AIM companies consider self-regulation to be ‘very' or ‘fairly' effective. Conversely, fewer than half (47%) of the investors interviewed shared the same view. One in three investors felt that light regulation equated with poor performance, compared with fewer than one in ten last year. Two thirds of the investors who took part in this year's survey agreed that further regulation is required, up from just over half last year. Only one in five disagreed.

Against a background of market downturn, tightening the rule-book and the introduction and development of IFRS, most companies have accepted and are managing the continuing obligations of being an AIM listed PLC. 79% say that these obligations have been ‘much in line with their expectations' over the last 12-18 months.

Nearly all of the AIM investors surveyed (91%) agree that, in the present difficult environment, good corporate governance is even more important. However, although there is a general sense that corporate governance has been improving, 58% said that the standards of corporate governance in AIM companies are not good enough.

Commenting on the findings, Melanie Wadsworth, a corporate partner at Faegre & Benson, said:

"AIM's relatively light-touch regulation has always been one of its key distinguishing features and regarded by most as a cornerstone of its success. This year's survey clearly shows that AIM companies believe self-regulation is working well but there is a disconnect with the views of investors, many of whom will have been adversely affected by the economic downturn and believe that further regulation is required.

"Although regulation of the AIM market has been formalised and improved over the last two years, particularly in respect of the role of the nomad, the findings suggest that more could be done to assure investors and ensure that high quality companies come to the market. Fuller rules on the ‘appropriateness' of applicants and more requirements for independent research on all AIM companies are two areas that could be improved upon without losing the regulatory flexibility that has made the AIM market so successful."

Chilton Taylor, Baker Tilly's Head of Capital Markets, added:

"Demands for increased regulation on AIM will probably grow this year. Some investors' survey responses point in this direction. But, as our other experts indicate, hasty moves risk being over-prescriptive and losing the light regulatory touch that has been a key element in AIM's past success."

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