BUSINESS NEWS COMMENT: SARAH LACY, DIRECTOR, SERENITY TRAVEL TRUSTS Atol reform: path to segregation


Segregation of client money is one of the central tenets of the UK’s regulatory framework for licensed professionals. Solicitors, investment agents and advisors, accountants, architects, letting agents, insurance brokers and insolvency practitioners are all subject to strict codes and regulations about how client money should be handled and segregated. How then, did the travel profession


escape? To find the answer, one must look at the history and evolution of the Atol scheme and financial protection under the Package Travel Regulations (PTRs). The earliest form of financial


protection for UK travellers, in the 1960s, was voluntary. Abta and members of the Tour Operators’ Study Group (TOSG) – forerunner of the Federation of Tour Operators – were required to hold bonds equivalent to a stated percentage of their turnover. Indeed, the first Atol scheme did


not aim to provide comprehensive consumer protection. It had just two principal aims. One, the ‘fitness’ test, was to prevent fraudulent operators in the growing charter market from taking money for non-existent flights. The second was to ensure people were not stranded abroad when a tour operator failed by introducing a compulsory bonding scheme.


CLARKSONS COLLAPSE It was only in 1974 when Clarksons,


then the country’s second-largest tour operator, collapsed holding a bond sufficient only to cover repatriation but not refunds, that the Air Travel


travelweekly.co.uk Sarah Lacy


probably have resulted in less overall impact on the public purse. As it was, the opportunity to bring travel in line


Reserve Fund was born. This fund, which was replaced by the Air Travel Trust Fund in 1986, was intended as a backup to cover refund requirements where the repatriation bond fell short. With introduction of the fund, the


government inadvertently sanctioned (indeed encouraged) the mixing of customer money with business funds. The Air Travel Reserve Fund would pay refunds in the event of an insolvency. As long as a travel company’s contribution to the fund had been paid, it was free to use customers’ money as it pleased.


MISSED OPPORTUNITY Recognition at that time that


segregation of consumer money would promote a travel company’s financial resilience might have meant consumer-protection measures required since could have taken a different path – and one that would


The focus of consumer protection [until now] has been on addressing the consequences of financial failure – not on preventing financial failure itself


with the professions which segregate customer money was missed. Increasing numbers of larger failures, most notably the collapse of Air Europa/International Leisure Group in 1991, led to increased pressure for consumer protection. This led to the EU Package Travel Directive of 1990 and to UK enactment of the 1992 Package Travel Regulations which extended the Atol scheme. By 1996, the Air Travel Trust


Fund was exhausted and needed replenishing as the reality struck that the breadth of consumer-protection requirements for travel would continue to grow. Once on the course of ‘cure being


better than prevention’, it was clearly difficult for legislators to divert from this course without pushing the industry into a cashflow crisis. It was no surprise that the 1992 Package Travel Regulations paid only lip service to the use of trust accounts. Instead, bonds and, later, financial failure insurance were reinforced as the staple cures for travel company financial failure. The subsequent emergence


of online travel agents and dynamic packaging through the late 1990s and early 2000s resulted in the outlawing of ‘split contracting’ in 2004, bringing many smaller travel businesses into the Atol scheme. The development of UK case


law – notably Abta v CAA (2006) and CAA v Travel Republic


(2010) – established that holidays sold as separate components were not packages. This triggered the introduction of the Flight-Plus concept by the CAA in 2012, which extended the Atol-protection regime yet further. The EU’s 2015 Package Travel


Directive then broadened the definition of a ‘package’ significantly and ‘Flight-Plus’ bookings were brought within the definition of a package by the 2018 Package Travel Regulations.


FUNDAMENTAL CHANGE All this legislative activity was reactive.


The focus of consumer protection was on addressing the consequences of financial failure by extending the type of holiday bookings covered by ever- more-complex regulation. Measures to prevent financial failure itself – by encouraging healthy financial- management processes and practices across the industry, in line with other regulated industries – were lacking. However, we are where we are.


Forcing dramatic and fundamental change on companies with established courses of dealing with customer money, which have been accepted – and, indeed, encouraged – over half a century, will not happen overnight. Segregation of client money is


difficult and, in some cases, may not even be possible without causing the ill it is intended to cure. But that doesn’t mean it’s not the


right thing to aim for. To coin a phrase: it’s better late than never.


16 MARCH 2023 47


PICTURE: Heather Holden


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