The London Stock Exchange (LSE) sets out some general guidance here but also refer Nominated Advisers (Nomad) to the important guidance contained in the Alternative Investment Market (AIM) Notice AD11.
The Nomad’s judgment regarding the appropriateness of a company listed under AIM has a crucial role to play in maintaining the quality of the market. Accordingly, the quality of due diligence on directors and the substantive judgements applied by a Nomad in assessing such information is vital.
Undertaking meaningful due diligence:
- As a starting point, directors’ due diligence procedures should be applied consistently for an AIM admission, the take-on of an existing AIM company from another Nomad, and the appointment of a new director to an existing AIM company client.
- Due diligence on directors should be a substantive tool in assessing appropriateness rather than a function which is undertaken merely for the purpose of completing a regulatory process.
- Due diligence on directors should be based on a Nomad’s reasonable judgement as to what information it requires in order to make an informed decision on an individual’s suitability to be a director of an AIM company. We refer to AR2 of Schedule Three of the Nomad Rules when considering this.
- We would expect Nomads to use a range of sources when undertaking due diligence including a suitable director’s questionnaire, web-based general searches, Companies House or similar overseas checks, interviews, reviewing references etc. The Nomad should evaluate this information and consider whether it is appropriate to undertake further due diligence from independent sources such as via due diligence companies.
- For overseas directors particularly, we would expect it to be the norm rather than the exception for a Nomad to undertake third party due diligence. The objective of third party due diligence is to provide substantive and reliable independent information which will be beyond what Nomads are able to ascertain from desktop searches.
Consideration of due diligence:
- Having gathered the results of a due diligence exercise, a Nomad should take a step back and consider all the issues arising from the information it has assembled.
- There should be an appropriate forum within each Nomad firm where risks are identified and the issues substantively considered and challenged by experienced members of the firm who are independent from the transaction team, where possible.
- Where issues of concern are raised from due diligence, a Nomad must reconcile those concerns by way of further reasonable enquiry and upon a verifiable basis.
- If any concerns arise that cannot be reconciled, a Nomad should consider how they impact upon appropriateness. It is of key importance that if the concerns are material and cannot be resolved, then a Nomad may be unable to conclude that the individual is suitable to be a director. Depending on the circumstances, this may extend to concerns that remain unproven.
- In circumstances where a Nomad is required to conduct due diligence into substantial shareholders or an individual able to exert significant influence or control over the company, the principles regarding due diligence on directors above can be equally applied as guidance.
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