BUSINESS NEWS the UK’s consumer financial protection system for travel businesses. Ian Taylor reports


Authority sets out plans for SBAs and agency agreements


The CAA proposes two changes that will not be consulted on. One is a change to the way Small


Business Atol-holders (SBAs) and “certain franchise Atol-holders” operate. SBAs are licensed for up to 500 Atol passengers a year and are mostly agents. At present, both these groups


of ‘small Atol’ holders pay Atol Protection Contributions on their Atol bookings annually. The CAA proposes to make the payments quarterly to the Air Travel Trust “within six weeks of each quarterly reporting period”, in line with the standard Atol-holder requirement. The CAA also proposes a change to the terms applied to agency


APC payments by ‘small Atol’ holders could change from annual to quarterly


agreements – between Atol-holders and agents selling their package holidays – to ensure agreements are kept up to date with changes to the standard terms issued by the CAA. Future changes would “take effect


on the date of publication by the CAA and apply immediately”. The CAA notes this would “mitigate the risk of otherwise compliant agents holding non-compliant written agency agreements”. For this to take effect, “Atol-holders would be required to reissue all agency agreements”.


Protection via insurance mooted as alternative to current system


The CAA also outlines moving to a wholly insurance-based financial- protection model as an alternative to reforming the current system. But it makes clear this would


require greater legislative change, something the consultation appears to rule out by stressing a focus on “changes the CAA is able to make through its own regulatory powers”. It would also make the sector


dependent on the insurance market. A switch to an insurance model


would mean “an Atol-holder would be required to obtain full, Atol-equivalent consumer financial protection from third- party insurance providers”, which would set the financial criteria and conditions.


“This would remove the need


for the Air Travel Trust and any CAA involvement in handling failures. The CAA would remain responsible for issuing an Atol, [but] would refocus from financial testing to requiring the Atol-holder demonstrate it had sufficient protection for its licensable holidays.” An Atol-holder unable to obtain


adequate protection through a third-party provider “would be refused a licence”. The CAA notes: “This option


would fully transfer the funding of the cost of failures to the financial markets [and] would be reliant on the capacity within the insurance markets.”


APC could become a variable rate


Proposed changes to Atol-holders’ financial arrangements are likely to be accompanied by changes to the Atol Protection Contribution (APC) rate, the CAA makes clear in its consultation. This could mean either an


increase in the current flat-rate £2.50 APC or a switch to a variable rate. The CAA proposes three variable-


rate options based on the ‘risk’ posed by the Atol-holder, the ‘value’ of the booking or a ‘hybrid’ of both. The consultation notes the


current flat-rate APC “means companies [with] an increased chance of failure . . . pay the same as companies [which] pose a lower risk”. The type of segregation of


customer money would be taken into account whichever APC model the regulator chooses. The CAA notes: “Whichever was used, the rates [for


travelweekly.co.uk Those who operate


trust accounts with maximum levels of protection would pay the lowest level of APC


less segregation] would be higher than for full segregation.” If risk-based pricing comes in, the


CAA suggests: “Those who operate trust accounts with maximum levels of protection in place would pay the lowest level of APC. A company considered to be high-risk [which] only had in place a bond, would pay more.” It notes: “One of the intentions


would be to give Atol-holders the incentive to take steps to protect customers’ monies. The likelihood is that APC payments by Atol-holders


that took lesser steps would be materially higher.” A ‘risk-based’ APC rate would


involve the CAA assessing an Atol- holder’s financial and business risk and capital structure as well as the extent to which it segregates payments. A ‘value-based’ APC would reflect


the value of a booking. The CAA notes: “This would be best-suited to mandatory segregation of funds where all monies are protected to the same standard. However, it does not reflect the increased risk some Atol-holders pose.” So the authority appears to prefer


a ‘hybrid’ model that “would take into account the value of the holiday and the risk profile of the Atol-holder”. The CAA notes: “We would expect the formula . . . to be weighted more toward risk than value.” It adds: “The APC rate paid by individual Atol-


holders would remain confidential.” The proposal of a flat-rate rise


in APC as an alternative implies the overall amount paid in APCs will increase whatever happens.


6 MAY 2021 39


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