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Regulation: ‘How sector looks after client money is woeful’
P
Toby Kelly
rotecting money in trusts could support a three-tiered approach to regulation based on an assessment of the extent firms risk customer money, according to Trailfinders. Chief executive Toby Kelly said the agency hopes
the Covid-19 crisis will be the catalyst for the sort of regulatory reform it has been “crusading on” for decades. He said regulations needed to be less fragmented;
should consider risk to mitigate the impact of failures; and should focus on protecting customer money rather than building up funds to pay for collapses. “Travel is the only significant industry where consumer
pipeline money isn’t protected by regulation. Whether it’s solicitors or estate agents or bookies, those are all protected,” he said. “For some reason it’s been woeful in travel. And it’s
almost been voluntary, to the extent that you decide [whether or not] to protect consumers’ funds.” Kelly said the CAA had told Trailfinders that parts
of the travel industry could not afford trusts and he said he accepted any transition would take time. Trailfinders has suggested a system under which firms
contribute towards a central pot for financial protection based on the risk they pose to customer money. Firms that keep all money in trust until the client
Liability: ‘Regulations need complete review’
Financial liability built up through the issuing of Covid-19 refund credit notes could lead industry regulators to favour the use of trusts. Kirsteen Vickerstaff, On the Beach
general counsel, said government reluctance to make a clear statement about Atol standing behind credit notes was likely to be due to calculations of the cost. “As part of that very scary
calculation, I imagine the government saying, ‘we want to put this back on the industry’. And I think the trust account is an ideal structure to go down.” Vickerstaff said current
industry regulation was complex,
fragmented and split across different government departments which meant customers did not understand it. “It needs a complete review,” she said. “And we definitely need that airline
insolvency review to be dusted off, because it’s been sitting on the shelf for a long time.” Vickerstaff said seasonality
Kirsteen Vickerstaff
of cashflow can be challenging, but firms complying with CAA liquidity rules should find transition to a trust not as hard as they might expect. “If you’re not complying with the CAA’s tough rules then, frankly, that’s even more reason to be in a trust structure,” she said.
Travel is the only significant
industry where consumer pipeline money isn’t protected by regulation – and [doing so] is almost voluntary
returns home would pay nothing, while firms that protect a portion of the money in trust would pay less than those that do not or cannot operate a trust. Kelly likened the current system to a 19-year-old who
has been banned for drink driving paying the same for insurance to drive a Ferrari as a 50-year-old with a clean licence driving a Nissan Qashqai. He said this was evident in last year’s collapse of
Thomas Cook. “Those in charge of regulation would agree, looking
back, that Cook was undercapitalised and probably insolvent for some years before it went pop,” he said. “If you operate from cashflow rather than being
properly capitalised, it is only a question of time, unless something drastically improves within your business. “You’re just buying time until you fail, and you’re
making the scale of that failure dramatically bigger because that money isn’t there.”
‘CAA TO SORT IT OUT’
The UK’s departure from the EU raises the prospect of regulatory reform to better manage future company failures than was the case with the “obvious catastrophes” of the recent collapses of Thomas Cook and Monarch. Gary Lewis, chief executive of Travel Trust Association
parent The Travel Network Group, said the EU gives member states a range of options as they interpret its directives into domestic law. He said this would have made it illegal for UK regulators to be prescriptive about how firms protect customer money to tackle inconsistencies in how regulations were applied across the sector. “There is real movement in the CAA and a feeling in
government that there is a chance to sort this out once and for all – that the airlines’ argument they are too big to fail doesn’t stack up,” said Lewis.
travelweekly.co.uk
16 JULY 2020
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PICTURE: Shutterstock
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