Special Report: CAA asserts case for change on Atol

Regulator concedes Atol reforms could be ‘largest ever’ and wants industry buy in. Ian Taylor reports

The CAA’s Atol reform proposals aim to move the current consumer financial-protection scheme from “the mutualisation of risk to something individual” for each business, CAA head of Atol Michael Budge told the Abta Travel Finance Conference this month.

Budge laid out the CAA’s “case for reform”, arguing: “We’re looking to improve the financial resilience of the scheme and also of the wider industry.”

But he stressed the CAA ‘Request for further information’ published in January “is not a decision document”, saying: “It provides an opportunity to give feedback.

“We’re aiming to drive change, but we want the industry to engage. It’s a two-way street.”

Budge told the conference in London: “There are some businesses reliant on customer money for operating. Is that right? We’re clear not every business operates in that way, and that it applies to businesses in different ways. But it creates some risks.”

He acknowledged this is “potentially the largest-ever reform to Atol” but argued: “We strongly believe there is a case for change and a move away from mutualisation of risk to something individual for a business.

“The industry is dynamic and evolving and we need to develop a system fit for the future.”

Budge noted the latest Atol reform document “has a lot to say about segregation” but insisted: “Not all roads lead to 100% trust accounts. We think segregation is the way forward but that does not mean trust accounts are the only way and it certainly doesn’t mean 100% trust accounts.”

However, he added: “Segregation better follows trading and seasonality and provides better financial discipline. We recognise it will be a challenge. [But] we’ve heard from people who have implemented segregation who now view it as a good thing.

“If you’re using £400 of a £1,000 booking to pay for flights and £400 for an accommodation supplier, we don’t disagree with that. We’re highlighting segregation as a way to understand how the money is used.

“We’re trying to explore different ways this could be put together given the different ways businesses operate.”

A variable Atol Protection Contribution

Budge told the conference: “There was strong feedback from the last consultation that stakeholders want to move to a variable Atol Protection Contribution [APC]. There was less agreement on the form it should take.

“It’s possible we could adjust the APC rate based on the extent of protection of customer money and the repatriation risk.”

He explained: “We commissioned research to understand consumer attitudes. The feedback was consumers do really value consumer protection, and they are willing to pay for it. Anything below a £10 APC was seen as acceptable.”

The current rate of APC is £2.50.

Budge added: “Consumer protection is not front of mind when planning a holiday, but consumers expect their holiday company will deliver and they can only do that if they continue to trade.”

Concerns about market distortion

Abta is formulating its response to the proposals through a series of financial protection workshops and an online survey of members which have identified duplication of financial protection and opposition to compulsory segregation of customer money as among the biggest concerns.

Rachel Jordan, Abta director of membership and financial protection, told the conference that duplication of financial protection is “one of the issues that comes up all the time” and said: “There is widespread opposition to mandatory segregation.

“Members want flexibility and there are real concerns about market distortion.”

Jordan asked: “Is it appropriate for the CAA to send businesses down a certain route and lead some to think ‘OK, we’ll leave’ [the Atol scheme].”

Carnival UK vice-president for financial control Paul Wilkinson agreed with Jordan, saying: “I struggle with the idea that one size fits all.”

He argued: “We’re a global company. We manage our liquidity globally. We get payments for bookings that are licensable and payments that are not – predominantly they’re non-licensable.”

Wilkinson suggested: “It’s important the CAA hears as many voices as possible.”

ITC Travel Group chief financial officer Emma Pickering told the conference: “A 100% trust account would cause us problems.

“We’re competing with unregulated players so it’s important what comes out of this reform is something we can work with, that works with the capital requirements of the business, that recognises the real risk and makes sure the industry remains competitive.”

However, Pickering added: “We can see from the second [CAA Atol reform] paper that the feedback [from the sector] has come through and there is a point to responding.”

She urged other Abta members to respond to the CAA’s latest request for evidence, issued in January, saying: “We know our business better than anyone. We have to put our points across. If we don’t there is a risk of less responsible responses.”

The deadline for responses to the latest Atol reform document is March 24.

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