Proposed changes to ATOL scheme

Proposed changes to ATOL scheme

In April 2021, the CAA launched a consultation on ATOL protection reform. The consultation will close on 30 July 2021 and the CAA will then consider recommendations ahead of launching a second consultation in early 2022.

ATOL licence holders should be looking to prepare for an outcome whereby they would be mandated to segregate some or all customer monies from operational cash balances until the customer has completed the holiday purchase and returned to the UK.

Total segregation would potentially involve all monies held in secure segregated accounts (either formal customer escrow or trust accounts) and no cash could be moved until the day after the customer returned from holiday. Partial segregation would involve the allowance of a small proportion of monies leaving the account in advance of the holiday to pay suppliers. There are some other options such as mandatory bonds, although these would not improve ATOL member financial resilience nor facilitate timely refunds to consumers.

These potential changes are intended to lead to better direct protection of consumers' money, as well as improving the financial resilience of the ATOL scheme.

The consultation document acknowledges that some ATOL protected travel businesses use their customers' advance holiday payments as a source of funding working capital before the holiday has been taken and that, while this is a “long-standing practice in the industry… in some cases it may fail to incentivise sufficiently robust financing arrangements.”

There has been a mixed reaction to the proposals, with some operators calling for more public consultation rather than solely focusing on those businesses in the travel sector, as the changes will impact consumers as well as businesses.

The objective is to reduce risk for consumers when a travel business becomes insolvent and ensure the protection provided by the scheme is not abused. The CAA will make specific proposals in early 2022, though the timing of any implementation period is presently unclear.

Many operators already protect customer money through fund segregation, and so the impact on working capital would be limited. There remain a number where customer and company funds are mixed or only a very small proportion of cash is held in a restricted form such as trust or in escrow. For these players, the changes could make a significant difference to their liquidity, as well as the operational complexity of managing funds between protected and operational accounts. Appropriate planning will be necessary in advance of any changes.