We are professional trustees to travel. Our decades of experience and knowledge of the travel industry (and specifically the experience we have gained in running travel specific trust accounts) enable us to identify the pitfalls and benefits of trust accounts as a means of providing financial protection.
Since the implementation of the Package Travel and Linked Travel Arrangements Regulations 2018 (PTRs), we have been working with the consumer team in the Department for Business, Energy and Industrial Strategy to give feedback in order to help to keep the PTRs 2018 in tune with the way that the travel industry operates. Our feedback has mainly been in relation to the insolvency protections. And specifically – in the light of the constriction of the financial failure insurance and travel bonding market – how trust accounts can form a bigger part of the UK travel industry’s consumer protection:-
1) Reduced risk of over-trading on a travel bond or other guarantee.
For obvious reasons, trust accounts represent a low risk in terms of consumers’ money. Quite simply, ALL consumer money is ring-fenced until it is ‘safe’ to release it. Therefore, there is no need for the CAA or ABTA to assess likely turnover for the purposes of setting levels of a bond or insurance premium.
2) Capable of being a single type of financial protection for all and any combination of travel services.
Trust accounts are a simple and cost-effective means of complying with statutory financial protection requirements, for new entrants to the industry and established businesses alike.
Having one trust account in place for all arrangements requiring protection avoids confusion for both the consumer and the travel company and reduces the risk of a travel company failing without having the required protection in place.
If correctly set up and administered, trust accounts are a more secure and reliable means of providing protection than an insurance policy or a bond.
Insurance policies can be subject to onerous conditions which may mean cover isn’t as reliable as it might appear. A bond is only as reliable as the assessment of turnover it is to protect, and the risk of overtrading is constantly present.
All Serenity’s trusts comply fully (and indeed go beyond) the requirements of the PTRs in terms of safety and security. However, trust structures that are over complicated can put an undue administrative burden on both trustees and travel companies, making them less cost effective to run. A careful balance between security and feasibility is required.
4) The drawbacks of the current legislative framework as it relates to travel trust accounts
As far as we are aware, Regulation 23 of the PTRs is the only statutory guidance that is available to help the travel industry assess the system, structure and parameters within which a travel trust should be run.
But this wording doesn’t stipulate what professional indemnity insurance arrangements trustees must have in place, or the checks and balances that should be applied by trustees of the account to ensure that the right funds are being paid into the account and released at the right time.
The wording doesn’t stipulate that funds must be paid directly into a separate trust account, or how that account and its transactions should be controlled so as to ensure its security.
We have called for more detailed and specific guidance on the way that trust accounts should be run. Alternatively, that only centrally approved trust schemes be permitted to be used as a form of financial protection.
5) Ease of Administration following failure
In a correctly run trust structure, consumers’ money will be securely held in a separate designated account until the arrangements it relates to have been fully performed or until suppliers have been paid (where appropriate Insurance is in place) and can be transferred to a fulfilment body immediately. So in the event of an account holder’s insolvency, customers will not experience lengthy delays in getting their money, and will not need to jump through administrative hoops to get it.
6) Expense of alternative arrangements
The cost of ATOL bonds are on the up as are the CAA’s minimum bond requirements. This option is prohibitive for a start-up or low turnover business.
7) Merchant Services
Merchant suppliers favour the use of trust accounts as they are transparent and greatly reduce the risk to consumer monies. Encouraging their use will also encourage merchant services suppliers to relax their currently quite onerous terms for travel companies. Such savings could be passed on to consumers.
In order to bolster that process, merchant services suppliers, the CAA and fulfilment partners would need to have clearly defined agreements regarding priority of payments to consumers.
Need we say more? We are confident that trust accounts will continue to feature in future legislation governing the financial protection of consumer’s forward payments made for travel services. And we at Serenity will continue to be at the forefront in forming the way that those trust accounts should be run and administered.