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‘Gold standard’ trusts would ‘devastate’ sector, warns trust provider

‘Gold standard’ trust accounts would be “devastating” for the industry, a leading proponent of trust arrangements has conceded, insisting the CAA’s approach to Atol reform should be “pragmatic.”

Daniel Landen, managing director of Protected Trust Services, told Travel Weekly: “For the CAA to put a model in place which says all consumer funds go into trust and don’t move until people come back is too much.

“It would be devastating. There needs to be a pragmatic approach.”

The CAA has proposed moving Atol holders to trust accounts or similar arrangements in a consultation on Atol Reform due to close at the end of July.

Alan Bowen, legal adviser to the Association of Atol companies, noted the consultation makes two proposals on trusts: “Either what the CAA would see as the ‘gold standard’ trust, where the money goes into the trust account and stays there until the customer comes home [or] a silver or bronze standard which would allow a specific amount for a specific booking – it mentions 20% – to be taken out [to pay suppliers].

“In theory, that would pay towards a flight, but there are lots of small businesses for which flights cost a lot more than 20%.”

Speaking on a Travel Weekly webcast, Bowen said: “Very few companies could run a gold standard trust account. There are some, but it’s difficult to find a business that is so well-capitalised or has so much power it can persuade all its suppliers to take payment after travel – and I defy you to find an airline which will allow you to issue a ticket without paying for it.”

He insisted: “We’ve got to be careful. We will probably move to two [types of] trust account. But the CAA might take the view they want the gold standard trust, not touching a penny, and that would put a lot of people in difficulty.”

However, Landen told the webcast: “My interpretation of the CAA’s position is that they are comfortable with using consumer funds to pay for a particular person’s travel. They don’t want consumer funds used to pay rent or wages or a VAT bill.

“So if £1,000 is paid and you need £200 to pay an airline, they’re okay with that as long as the £1,000 is separated.”

Bowen and Landen agree that ‘gold standard’ trusts could make it impossible for smaller businesses to pay suppliers in advance.

Landen said: “Large companies with huge turnover have a stronger ability to pay suppliers post-travel than a small guy with limited passengers. SMEs [need] the ability to use consumer funds to pay suppliers in advance.”

One CAA proposal is for a partial segregation of funds allowing some money to be paid to suppliers – it suggests up to 20% of a booking.

Landen argued: “A flat 20% would have its challenges. If you’re paying £700 for two people to go to Spain in November, 20% would be enough for the flights. For a £10,000 booking, 20% would probably be enough.

“[But] there are so many permutations. I don’t know how you would monitor a set percentage.”

Bowen warned there would be costs attached, noting: “The CAA says ‘If we’re going to consider allowing funds to leave [the trust] to pay suppliers that money is going to have to be bonded’.

“So there is an additional cost because, at the moment, the vast majority of Atol holders don’t provide any bonding.”

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