In January 2023, the Civil Aviation Authority published a request for further information, following responses received following its initial consultation which began in June 2021.
Here follows a note summarising the main points of that document:-
Respondents reported concerns about the availability and coverage of financial products for the entirety of the travel industry, the likelihood that such products will pay out in the event of insolvency and the capacity and the cost (and volatility) of premiums.
Thus, the CAA says it is minded to focus its further work in this area on the use of financial products as a complementary measure sitting alongside mechanisms of client money segregation. The CAA clarified the client money segregation options that it was considering:-
(1) Total trust segregation – protecting and holding all customer monies in trust until delivery of the holiday is completed;
(2) Trust segregation that allows for release of funds for certain types of supplier payments or up to a certain value or percentage of advance payments to suppliers (underpinned by other mechanisms such as bonding and/or insurance.)
(3) Trust segregation whereby monies can be released to cover the value of all holiday supplier payments; or
(4) Client account segregation whereby a designated company director takes responsibility of the client account that could operate under any of the approaches set out in (1)-(3) above, or indeed under an approach that also allows payments out of the account to cover other expenses (such as general prepayments made by an ATOL holder to secure commitment volume). The operation of the client account would be validated on a certain frequency by an independent auditor (ATOL Reporting Accountant).
These options could be applied applying a risk based approach based on the size of the ATOL holder; the nature of the ATOL holder’s business (in the context of its supplier relationships and supplier payments); and whether the ATOL holder is part of an integrated airline group.
They could be supplemented by applying a (risk aligned) variable APC whereby a discount to the rate of APC would apply where the ATOL holder provides a greater level of direct protection/security than is required by the terms of their licence.
Why do the CAA favour client money segregation?
- There are benefits associated with the additional financial discipline required to segregate monies;
- Segregation is more likely to lead to improved industry resilience;
- Because there are multiple segregation options, overall, there should be a lower risk of travel businesses de-packaging or exiting the market altogether;
- There are benefits associated with improvements in the quality of booking and payment data in the event of a failure of a business.
Overall, the CAA says that it is minded to focus its further work on hybrid approaches to segregation– i.e. where bonds and other financial products are used as additional measures to enhance the protection of customer monies alongside a form of segregation and variable APC.
Responses to the consultation should be made before 24th March 2023 via this link
