What agents need to know about Atol reform on the horizon

WHAT CHANGES ARE BEING PROPOSED?

In its consultation, the CAA put forward several proposals that it believes may better protect customer payments and the speed at which refunds are made to customers. Those changes include:

1. Mandatory segregation of customer monies: Requiring Atol holders to segregate the monies that they receive from customers from the funds they use to run their business generally. Those segregated funds would not be able to be accessed or used by the Atol holder until successful completion of the customer’s holiday. Atol holders would therefore be required to fund the operation of their business from alternative sources. 

Segregation could either be on a partial or total basis. Total segregation would require the Atol holder to segregate all funds received from a customer, whereas partial segregation would mean that only a portion of the customer funds need to be segregated (the CAA gives an example of 80%), with the remainder being able to be used to pay suppliers, etc. 

2. Mandatory bonds: Requiring Atol holders to provide a bond (provided by a bank or insurance company) in an amount set to meet a specified minimum value of customers monies collected by the Atol holder. 

3. Hybrid model: The CAA also proposed the option of a hybrid model, offering a choice between segregation of funds or a bond (or using a combination of the two), allowing Atol holders the flexibility to choose the option that best suits their business model. 

Aside from the above, wider changes proposed by the consultation include:

1. APC: Changing the way APC is charged to adopt a variable rate (instead of the flat £2.50 per booking) based on either the Atol holder’s risk of failure, the value of the specific booking or a combination of the two.

2. Atol Agency Agreements: Revising the way changes to the Atol Schedule of Agency Terms are implemented. Currently, when the CAA issues an update to the Schedule of Agency Terms, Atol holders must update the agreements they have in place with their agents, within three months. The CAA is proposing a change to this process, so that updates instead apply automatically (unless the change is particularly significant). 

3. Pipeline funds: The consultation also focused on pipeline funds, with the CAA noting that a potential risk to Atol holders can arise where a retail agent suffers a financial failure, while holding on to customer monies. The CAA raised the question of whether there should be a requirement for agents to immediately pass pipeline monies to the Atol holder or whether agents should also be required to adopt a form of segregation (of the types set out above). 

What do the proposals mean for the industry?

A second consultation, outlining the specific proposals that the CAA intends to implement, is expected in the coming months.

If the proposals are implemented, this could have a significant impact on the way that Atol holders and travel agents fund the operation of their business.

Therefore, while the industry awaits the specific proposals, both Atol holders and travel agents of Atol holders should consider the impact any potential changes may have on their business model. 

In the event the CAA mandates the use of segregated funds, considerations should include how well placed the business is to fund its working capital, and whether the business will need to consider seeking funding from alternative sources.

Similarly, businesses should also ask themselves how the use of segregated funds will affect how and when supplier payments can be made and, to mitigate the impact, whether it will be possible to renegotiate supplier payment terms if needed.