Atol reform: The CAA’s long-awaited report released last week proposes two fundamental changes to t Continued from page 40


expenditure rather than the specific booking.” It suggests: “Many Atol-


holders operate a business model which allows customer money to be commingled with operational cash . . . This can cause additional risk as it requires a constant inflow of new customer monies to meet the costs of providing the original services.” The consultation paper adds:


“The Covid-19 pandemic has amplified the need for change, in that poor capitalisation and the use of customer monies as a primary source of working capital can lead to a rapid deterioration of available cash. “Businesses that have clearly


separated customer monies . . . have often been more financially resilient . . . and better able to pay refunds for cancelled holidays.” It insists: “This consultation


is looking at how Atol-holders finance their operations rather than restricting certain types of business models.” Yet the purpose is clear: “The


current framework has not done enough to restrict the use of customer monies as a source of low-cost financing.” It argues the current system


“has failed to sufficiently incentivise Atol-holders to put in place more-robust financing structures and protection . . . [and] a flat-rate APC of £2.50 has failed to reflect the risk individual Atol-holders pose to consumers. This view has been reinforced by the experience during Covid-19 [over refunds].” The CAA acknowledges


the industry “may require time to adjust” and promises “an appropriate implementation


timetable”. i Proposals, pages 38-39


CAA spells out options to segregate clients’ money


All Atol-holders as well as agents selling on their behalf would be required to segregate customer payments wholly or in part under the CAA’s Atol reform proposals. The segregated funds could


not be used until customers completed their holiday. The CAA acknowledges this would mean “Atol- holders would need to fund their operations from alternative sources”. It suggests segregating payments


“may provide comfort to merchant acquirers that they will be less exposed to insolvency risk and hence may make reduced or zero demand for security”. However, the extent to which merchant acquirers make allowance for existing trust arrangements is unclear and acquirers typically require security such as additional bonds from companies bonded with Abta. ‘Total’ segregation would mean no money could be paid from the account holding the money “prior to the customer’s return, including prepayments to suppliers such as airlines”. Atol-holders would still have to add an Atol Protection Contribution (APC) to bookings.


Bonds ‘may still be required for weaker companies’


The CAA’s proposed financial overhaul of Atol could see bonding requirements retained for companies in a “weak financial position” as well as to supplement the segregation of customer money. The Atol-reform consultation


38 6 MAY 2021 Monies not paid


directly to the Atol- holder but to an agent would need to be segregated by the agent


The CAA notes that despite segregating the funds “there remains some exposure to the Air Travel Trust as a result of fraud or repatriation and administration costs of an Atol failure”. ‘Partial’ segregation would mean


some money could be removed from the segregated account such as to pay for flights. But payments “would be limited”, with the CAA suggesting as an example that it could insist only “up to 20% of the value of the . . . holiday could be removed”. Payments could be held in a trust


account, managed by professional trustees for a fee. Or they could be held in an escrow, or third-party, account – the CAA suggests it would sanction this for “partial segregation only”. A third alternative would be a ‘customer monies account’ – a


notes: “If the CAA chose to mandate bonds in the new framework, the value required would be set to meet a mandatory minimum of customers’ monies. Financially weaker companies


“could be required to provide a bond which has a higher value than the mandatory minimum”. The new framework “could


offer a choice between segregation of funds or bonds”, allowing Atol-holders a choice. “Atol-holders could have the


standard bank account solely used for customer payments. In this case, the Atol-holder would need insurance or a bond as backup. The CAA notes the proposals


“could reduce the choice of business models for Atol-holders”. Agents would also need to


segregate payments taken on behalf of Atol-holders. The consultation states: “Where monies are not paid directly to the principal Atol-holder but to an agent, this money would also need to be segregated by the agent. This could either be done in a segregated account held by the agent, or the monies immediately passed to the Atol-holder’s segregated account.”


option of utilising either or both methods of security to achieve the minimum level of protection required. For example, if the CAA required Atol-holders to protect a minimum 80% of liabilities to consumers, an Atol-holder may wish to provide a bond which protects 30% and an escrow account for the remaining 50%.” It notes: “This would likely be


accompanied by a variable Atol Protection Contribution (APC) structure.”


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