New practical guidance for nominated advisers (Nomads) on the staffing of their corporate finance functions has been published by the London Stock Exchange (LSE) to enable Nomads to fulfil their obligations under the AIM Rules for Nominated Advisers (Nomad Rules).
The new guidance was published by the LSE in its recent edition of Inside AIM in which it answers the market's frequently asked questions concerning Nomad staffing, taking into account the latest market conditions and trends.
Relevant Transactions – what's in scope?
The Nomad Rules set out the eligibility criteria and approval process for firms applying to be, or retaining the status of, a Nomad. Amongst other criteria, the firm must have acted on at least three 'Relevant Transactions' during the last two years and must employ at least four experienced senior corporate finance practitioners (defined in the Nomad Rules as "Qualified Executives" or "QEs"). The LSE acknowledges that market conditions can have an impact on the number of Relevant Transactions undertaken and notes that Nomad Rule 5 gives it the discretion to consider equivalent work undertaken by a firm in respect of IPOs or other major public transactions where the work performed is similar to an AIM admission.
Overall deal management and responsibility
When considering alternative transactions, the new guidance clarifies that the LSE will require evidence that firms have undertaken work equivalent to the Admission Responsibilities set out in Schedule Three of the Nomad Rules and that the firm has retained "overall management and responsibility for the transaction and transaction documentation".
Examples of transactions it may consider accepting include:
- Schemes of arrangement where the Nomad has acted for the offeree and has led the drafting of the main scheme document.
- Potential 'Relevant Transactions' aborted due to market conditions where all relevant due diligence has been completed and the documents are in final form.
- Complex Relevant Transactions. The guidance provides that usually only one approved QE would be expected to be the lead adviser on each Relevant Transaction but it may be two if the transaction is sufficiently complex. If a transaction is considered to be complex, the firm should provide details of the roles of the two QEs and an explanation of why both should be credited with acting in a lead corporate advisory role.
What is the status of a QE on transfer to another Nomad?
The LSE is frequently asked whether a QE in an existing firm will automatically transfer as a QE if they change firm or join a firm which is considering applying to become a Nomad. The answer is not straightforward but the LSE highlights the following points for consideration:
- The QE status is not an individual function and so is not automatically transferable. Rather, the QE status is a designation granted to a firm denoting certain individuals who are authorised to advise on the AIM Rules for that firm, as Nomad. Consequently, the LSE will consider the QE's status in the context of its 'new' firm's overall staffing, including its management controls, senior management supervision, junior support and compliance function.
- Where a firm supports an individual to act as a QE on its behalf, and that QE applicant is not able to demonstrate that all the required Relevant Transactions have been completed, the LSE may exercise its supervisory powers under Nomad Rule 27 such as providing for ongoing supervision, as a condition of approval. In such circumstances, the LSE will look at a range of factors, including whether the applicant has a sound understanding of AIM and the UK corporate finance market, the level of support available to the QE applicant and the wider staffing and controls within the firm.
- When supporting a QE application, Nomads should bear in mind that the QE approval criteria is designed to ensure that the firm is in a position to meet its own obligations to the LSE and maintain standards across the market.
Team working patterns – flexible but full coverage required
The LSE clarifies that the intention behind the Nomad Rule that QEs must be "full-time employees" is to emphasise that the role demands 'full attention' and so that Nomads can demonstrate to their issuer clients that they can have real time access to experienced staff to lead on regulatory advice. Consequently, part-time and flexible working patterns are not precluded for individuals provided that they are arranged in in a way that supports the performance of the Nomad's obligations. For example, the Nomad should ensure that a client has real time access to more than one QE which knows its business.
Compliance – what makes an effective function?
Together with QEs, the LSE notes that the compliance function is a critical component in the effective staffing of a Nomad. Whilst noting that the success of a compliance team is dependent on engaged senior management, the LSE also asks Nomads to consider whether their teams have, amongst other things, sufficient and experienced resources; knowledge of the Nomad's obligations and the wider UK corporate finance market; oversight of compliance with the firm's corporate finance manual; risk awareness and management and full engagement with the Nomad team.
Maintaining knowledge and experience – internal de-briefs are key
Firms are encouraged to share knowledge internally and to capitalise on the experience and expertise within their teams to conduct meaningful reviews. The LSE has found that the firms best placed to meet their obligations as Nomads have experienced staff in addition to the QEs, focus on individual and collective performance and supervision and have an engaged management team operating within a strong compliance culture. If firms are considering or designing an internal review, the LSE has offered to provide support by drawing on its own insight and engagement across the market.
Whole firm has a role to play
The LSE has issued clear and practical guidance for Nomads across the market when staffing their corporate finance functions to ensure that they have the teams in place to fulfil their regulatory obligations. The guidance also reminds us that these 'teams' comprise more than just the requisite QEs - but also a strong compliance team, experienced staff, junior support and an engaged senior management team are all important elements in the wider staffing of an effective and compliant Nomad.
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