Industry warned proposed Atol reforms will up costs 'for every holder'

The message came after the Civil Aviation Authority (CAA) extended its deadline for feedback on its proposed changes to the Atol scheme, which could include the introduction of some form of segregation of customer funds, and potentially introducing a variable Atol Protection Contribution.

In response, the AAC said it could not support the proposals for the separation of funds "at all", as it believes there is a risk the changes will "fundamentally alter the ability" of some holders to continue trading. 

"We believe the best form of regulation is regulation by consent, but our members have made it clear that segregation of funds would not be the preferred method of financial protection at all," the association said.

The AAC also noted that at present, the CAA has no proposals to deal with the issues of pipeline money held by agents.

"The reality is that most agents act honestly and collect funds when required and pass them on to the relevant Atol holder as agreed," the group said.

"Simply adding a term to be inserted into every agency agreement requiring either immediate payment to the Atol holder or for the funds to be held in a separate account is frankly unenforceable in reality."

The group also found 75% of members would be interested in looking at  bonding as the main means of financial protection.

"In the last 12 months, the bonding market has both increased with new entrants to the marketplace but also become a much more reasonable cost option," the association said.

"The danger of course is that if the CAA only looks for bonding from those they consider to be at the highest risk, bond obligors will recognise that they are being asked to protect only the weakest of companies and price accordingly."