Summary: The London Stock Exchange has today launched an industry consultation on a review of the AIM Disciplinary Procedures and Appeals Handbook. The redrafting of the Handbook has been undertaken to enhance the efficiency of the disciplinary process and to introduce a clearer framework for the settlement of disciplinary cases, with fixed discounts of financial penalties available to AIM companies and nominated advisers who reach early settlement.

The Handbook details the procedures to be adopted in relation to decision-making by the AIM Executive Panel (AEP), the AIM Executive Appeals Panel (AEAP), the AIM Disciplinary Committee (ADC) and the AIM Disciplinary Appeals Committee (ADAC). 

Key proposed changes include:

A clear process and new financial discounts for early settlement of disciplinary cases For the first time and for the benefit of parties facing public censure, the Exchange proposes to introduce clear rules on how settlement can be reached in disciplinary proceedings.  The introduction of a settlement process is consistent with the approach of other regulators, such as the Financial Conduct Authority.

There is an opportunity for a party to settle before commencement of proceedings.  Where such a settlement is reached within 20 business days of settlement terms being offered by the Exchange, a 30% discount off the level of any financial penalty proposed to be levied will be provided.  The Exchange retains the right to settle the sanction at this stage as a private/public outcome with a fine. Where a party does not settle at this early stage, but later accepts the alleged breaches of AIM Rules set out in the Statement of Case prior to the date set for a Case Management Conference, then a reduced discount of 15% from the proposed level of financial penalty will be provided.

Increased transparency of AIM disciplinary cases

For contested cases that are to be decided by an AIM Disciplinary Committee, the Exchange proposes that it will publish an AIM Disciplinary Commencement Notice upon service of a Statement of Case; and an AIM Disciplinary Outcome Notice once a determination by the AIM Disciplinary Committee has come into effect.  The Commencement Notice will name the parties and provide a summary of the alleged breaches of AIM Rules.  The Outcome Notice will again name the parties and summarise the decision of the Committee.  This will lead to greater transparency of cases referred to the AIM Disciplinary Committee, and also much better visibility on outcomes of those cases – even where the Exchange is unsuccessful in proving that any breach has occurred.   

A new overriding objective

The revised Handbook proposed a new duty on the relevant decision-making body to have regard to an “overriding objective”.  This overriding objective is “to ensure the just, efficient and expeditious presentation and determination of the matters in issue at proportionate cost, and to act fairly between the parties at all times.”  This reflects the desire of the Exchange to ensure that the issues to be determined through its procedures are handled fairly and promptly, yet without the cost and level of resource that would typically be necessary in Court-based litigation.  In keeping with this approach, AIM companies and nominated advisers are expected to act responsibly and reasonably during both an investigation and any subsequent disciplinary process.  

Appeals of non-disciplinary decisions

The revised Handbook provides that in the case of successful appeals of non-disciplinary decisions of the Exchange (for example, supervisory decisions) the appeal body shall remit the matter back to the initial decision-maker for reconsideration, rather than substitute its own decision.  This new approach has similarities with the Financial Conduct Authority’s approach where it faces appeals of its supervisory decisions.   

Clearer procedural rules

The revised Handbook contains separate procedural rules for disciplinary and non-disciplinary cases before each of the AEP, AEAP, ADC and ADAC, providing a clearer process to be followed.  A new Case Management Memorandum and Indicative Standard Directions and Timetable for Disciplinary Proceedings is included in the Handbook, which helps to clarify the standard approach to be adopted by the ADC in handling disciplinary cases.  Prescribed forms for bringing appeals are also appended to the revised Handbook.   

Costs orders

The Exchange proposes greater clarity on the costs orders.  Disciplinary committees and Non Disciplinary panels retain the discretion on costs, with a presumption that parties who are found to have breached the rules or failed in their appeal will be ordered to pay the Exchange’s costs in relation to the disciplinary proceedings/appeal.  In common with costs provisions applying to other regulators, costs will only be awarded against the Exchange where bad faith has been demonstrated. 

The Exchange has previously indicated in its Discussion Paper of 11 July 2017 that it will continue to utilise the full range of its available powers and remedies to address non-compliance with its Rules, including private sanctions when appropriate to do so.  The changes to the rules retain the Exchange’s rights to determine sanction, enabling it to take effective and proportionate action depending on the circumstances.  As set out in the statistics included in the Discussion Paper, a great deal of the work undertaken by the Exchange is focussed on education and in changing behaviour.  The new rule changes are not expected to impact on a continuation of this approach. 

In many respects the changes proposed by the Exchange will serve to enhance the clarity and efficiency of its processes and enable parties to weigh up the different potential outcomes arising from how they choose to respond to potential enforcement action of the Exchange.  The changes that I expect AIM companies and nominated advisers to feel most directly will be the availability of financial discounts for early settlement, and the greater visibility of cases within the AIM disciplinary system.  I would expect that the combination of these changes, together with the risk of adverse costs orders at the conclusion of proceedings, will over time lead to an increase in the number of AIM disciplinary cases settling at an early stage.

The consultation period runs over the summer and concludes on 10 September 2018.  A copy of the Exchange's consultation paper is available here.