(SOURCE:http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article1403542.ece)

by Elizabeth Colman

The London Stock Exchange is expected to publish strict guide-lines this week for advisers bringing companies to AIM, the junior London market. In an attempt to make the industry more accountable, the first tangible rulebook for nominated advisers, or nomads, will demand that more thorough due diligence be carried out on AIM applicants. Proposed rules include the demand for strict background checks on all directors and site visits to the headquarters of nonUK companies. Failure to comply with the rules could lead to a nomad being banned from AIM. The crackdown follows a string of profit warnings involving AIM-listed companies and criticism from the US about so-called lax standards. Under the present AIM structure, nomads are not subject to hard-and-fast rules. “This is an attempt to show the world that the AIM is taking a tougher approach,” one nomad said. However, many larger nomads said they already complied with the “best practice” standard set out in the rulebook. The rules are expected to weed out smaller nomads which “rubber-stamp” applicants’ admission documents and neglect to stay in touch with the company after listing. The wording of a key declaration to be published on the front page of admission documents, assigning to nomads the responsibility for the “appropriateness” of AIM applicants, is expected to be tempered. Richard Baty, a nominated adviser and assistant director of corporate finance at Hanson Westhouse, said: “We don’t expect the new rules to be too prescriptive. The whole point of AIM is that it is regulated by the nomads. The spirit of the rulebook is that the nomad uses their judgment.” Although AIM applicants are required at present to show legal and accounting diligence, the rulebook will require nomads to prove to AIM regulators a knowledge of the company and its directors. This will present a particular challenge in emerging markets such as China and India, and the crackdown is expected to provide a boon to business intelligence services. Russ Corn, a consultant at Diligence, an intelligence gathering and risk management firm, has noticed an increase in business. He said: “There is a feeling among the nomads and the brokers that they will be required to look at every single director that they’re bringing to market and that they validate and check the directors’ declarations and the essential information that they’re given. Up until now the nomad could get away with taking it at face value. Now they’re going to have to do reputation and integrity profiling.” Several nomads welcome the rules, saying they will provide an impetus to tell clients that they must do background checks, in circumstances where it may have caused offence. Previously, many nomads carried out such checks without the applicants’ knowledge.