2021 was a busy year for NOMADs with the Alternative Investment Market (AIM) recording sixty-six new listings, the highest since 2007, with £1.4bn raised in AIM IPOs. Adherence to the London Stock Exchange AIM Rules continues to drive compliance onboarding requirements for NOMADs, particularly those described in Schedule Three clearly outlining their role to assess the suitability of applicants. This is expected to be achieved by developing “a sound understanding of the applicant and its business”, in particular considering “any issues relating to the applicant’s country of incorporation and operation and any other issues that might affect its appropriateness.”
We take a look at what is required to comply with director screening requirements for AIM NOMADS, what the key challenges are and how to simplify the process.
Director Screening for an AIM NOMAD - What is required?
NOMAD admission responsibilities are set out in the AIM Rules under AR1, 2 and 3. These outline the need for NOMADs to obtain a holistic view of the applicant’s suitability for listing via thorough and systematic checks.
Research should be undertaken including obtaining the company’s operating and litigation history, providing insight into the background, competencies, potential conflict of interest and any political or criminal links of the directors, owners, key management, and decision makers, which could be cause for concern. In addition, the information provided in the directors’ and company’s questionnaires needs to be checked and substantiated for accuracy and completeness.
The guidelines outline that NOMADS are expected 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.”
Due diligence not only allows NOMADS to comply with the regulator's requirement, but also provides the clarity to assess the suitability of the applicant. For overseas domiciled companies, directors, and key stakeholders, the NOMAD should ensure that relevant foreign language searches are conducted.
AIM Rules further outline that in the case of overseas directors, they would “expect it to be the norm rather than the exception for a nomad to undertake third party due diligence” in order to “provide substantive and reliable independent information which will be beyond what nomads are able to ascertain from desktop searches.”
AIM due diligence challenges
Meeting the due diligence requirements is complicated, especially with directors who have an extensive global and cross-industry footprint. Three common challenges include:
1) Unravelling complex company ownership structures
A UK Financial Conduct Authority (FCA) report from 2019 noted that achieving the expected outcomes when conducting due diligence is far from straightforward.
“One participant who acted as a nominated adviser (NOMAD) told us they found it harder to get comfortable with due diligence on AIM companies, as opposed to main market companies, as they tended to have more complex structures or hard-to-verify initial sources of funding.”
Unpicking opaque and complex ownership structures poses a common challenge for compliance and risk assessment professionals. Obtaining independently verified information on who is really in control of a firm can be difficult. According to a 2020 World Bank review, only 64 national economies require Beneficial Ownership registration via a centralised register, leaving a substantial gap in information availability.
For registries that are available, in the EU and beyond, not all have public access, not all are updated and many are difficult to use and are time consuming to access. In these circumstances expertise on the ground can prove invaluable in providing the necessary intelligence.
2) Global and often non-digitised information
The AIM is known for its diversity, with listed companies coming from thirty-plus industry sectors and from more than 25 countries. With this in mind, it’s likely that due diligence research will take NOMADS far from the comfort of Companies House desktop searches to confirm directorships and ownership worldwide. The situation becomes even more difficult for de-centralised and often non-digitised litigation and bankruptcy records for directors and their businesses.
Verifying a Director’s global business footprint requires not only an understanding of sources of information and the details of their accessibility and reliability across numerous jurisdictions, but also the means of conducting available checks and doing so within short timeframes. While globally corporate ownership and directorship records and litigation records are frequently digitised, they are still often hidden behind local access restrictions.
Access to subject matter experts who can source business and legal information within the country whether it’s digitised or analogue, who are fluent in the language, and who are well versed in local law are much in demand, if you can locate them. Furthermore sourcing, vetting and onboarding such experts can slow the process down further, while using aggregators and intermediaries can drive up costs. Factor this across multiple jurisdictions and the potential complexity of assessing suitability is far from straightforward.
3) Conducting overseas due diligence via independent experts
While public record checks form a significant part of the due diligence process, developing a sound assessment of suitability requires NOMADS to use a range of intelligence sources to inform their decision-making. This is especially vital where an issue of concern has arisen from desktop searches or requires further investigation. A rich source of intelligence can be found by gathering third party references and conducting interviews with industry contacts to better understand a director’s reputation and business acumen.
Conducting reputational standing interviews and gathering references on a global basis can be a huge undertaking. From sourcing local language translations and identifying suitable interviewees through to deciphering the context behind the commentary, managing this process to inform decisions can often return inconclusive results. NOMADs may find themselves unable to gather the necessary information, casting unnecessary doubt on an otherwise smooth listing process.
The benefits of a tech-enabled approach
Fulfilling due diligence responsibilities using traditional techniques can seem like an arduous task, but there is another way.
At Ground Truth Intelligence our unique tech-enabled approach to due diligence and intelligence gathering provides NOMADS with a more efficient way to manage director screening. Our platform:
Provides truly global coverage
Our curated global community includes 1500+ intelligence sources in 200+ locations, fluent in 80+ languages. They are familiar with where to find information, align to jurisdictional information gathering rules and are able to access local corporate registries and conduct reputational interviews.
Simplifies and streamlines workflows
Our one-stop platform simplifies the sourcing of hard-to-get data. Optimum matching with our global network partners is achieved via our adaptive algorithm, seamlessly connecting you to the on-the-ground investigator who will conduct the background checks and verifications according to your specific requirements.
Is designed to scale
No matter if you only require one piece of information or thousands, we can handle it. The platform is fully configurable for complex or unique multi-jurisdictional data and intelligence requests.
Provides peace of mind
Founded by industry experts, the platform is designed for maximum GDPR compliance and data security and is aligned with global best practices.
Conducting AIM due diligence doesn’t have to be difficult or time-consuming with the Ground Truth platform. Get in touch today to see it in action.