Lawyers have expressed differing opinions over the London Stock Exchange's decision to double the number of enforcement staff that focus on the Alternative Investment Market. The LSE announced the decision, along with revisions to its rulebooks for nominated advisers and disclosure requirements for AIM-listed companies, to a mixed industry response.

Philip Rubens, partner at Finers Stephens Innocent, told Complinet: "The bulk of enforcement action in the financial services sector is carried out by the Financial Services Authority. Over the last few years the LSE has ceded a lot of its enforcement powers to the FSA".

The FSA already had extensive experience of taking disciplinary action against AIM companies, he noted. "It has the experience, and superior resources in terms of numbers of enforcement staff."

Ian Mason, partner at Barlow Lyde & Gilbert, said it was likely that both the FSA and the LSE had considered the changes for some time. "Although the FSA has more extensive enforcement powers than the LSE, AIM is still a market regulated by the LSE and one of the areas they are thinking about is the responsibilities of nominated advisers."

Mutual interest

Mason saw no significance in the timing of the announcements. "If you had a serious failure involving, for example, market abuse on AIM, then obviously that would still primarily be a matter for the FSA. I am sure the FSA and the LSE communicate where there are cases of mutual interest," he said.
Rubens suggested that one of the best ways for AIM to enhance its credibility would be to let the FSA deal with enforcement actions against nomads. "It does seem somewhat ironic that the exchange wishes to add to its enforcement staff at the same time that the FSA is planning to make enforcement people redundant," he noted.

Mason said: "I think that for the FSA, the principles-based approach puts the emphasis on compliant firms to 'police' themselves. This may well lead to fewer, but also bigger and more complex enforcement cases, as the FSA has recently acknowledged in its business plan."

High-level

"The recent rulebooks consultation has codified the LSE's expectations of nomads. A lot of that is quite high level, and is likely to be helpful to firms for clarifying what the exchange expects. Once you set that out in a bit more detail you will also need to enforce it a bit more."

Martin Graham, director of markets and head of AIM at the LSE, announced that the exchange would hire more staff to focus on the regulation of AIM as well as tightening the scrutiny of international companies listing on the market.

Mason said: "I think there is going to be an increased focus by the LSE on AIM regulation. I suspect that they want to show their teeth, where appropriate, on standards they expect in the market."

Ashley Reeback, head of Finers Stephens Innocent's AIM team, said: "Those still wishing to find areas open to interpretation will find plenty of examples in the new rules, for example definitions of 'adequate levels of qualification and staffing' and the regulatory responsibilities nomads have for reporting rule breaches that may (but not must) take priority over their client obligations."

Reeback believed it was important that AIM did not become heavily regulated overnight. "One of the big attractions of AIM to date has been its flexibility and principles-based approach."

The LSE's announcement of an increased enforcement headcount for AIM follows comments by the chief executive of the New York Stock Exchange, who criticised AIM for a "lack of standards".