The CAA’s most recent consultation on ATOL reform is remarkable for what it does not say, in as much as anything. Key drivers for beginning the process of ATOL reform in April 2021 are not mentioned, neither is any consideration given to the impact of the reforms on certain key stakeholders. The recent Fox Williams travel webinar – available on demand – explored some of these issues.

No mention of customer refunds

The CAA’s initial consultation in April 2021 repeatedly stated that one of the key drivers for ATOL reform was the need to improve the ability of ATOL holders to pay refunds for cancelled holidays. This was given as one of the main reasons in favour of the segregation of customer money – “The standardised approach of segregation of funds best achieves our aim of improving ATOL holders’ financial resilience and enabling refunds to be paid to consumers (where appropriate) in a more efficient manner.

In setting out the options for reform in the new consultation, and how they will be assessed, the issue of refunds is not mentioned once. This begs the question why not?  Does it mean that – in its evaluation of the options – the CAA will not consider how they impact upon the ability of ATOL holders to pay refunds for cancelled holidays?  If so, it does remove one of the key reasons given initially by the CAA in favour of segregation.

No mention of merchant acquirers

Upon the failure of an ATOL holder, customers who booked using a credit card are typically referred to their card issuer to obtain a refund (which is ultimately passed on by the card issuer to the acquirer). This arrangement is formalised by legal agreements between the CAA and the acquirers and it is the reason for why acquirers often require security from their ATOL holder clients.

In the new consultation, the CAA carefully describes the stakeholders who will be affected by ATOL reform and how they will be impacted. Given the role currently played by acquirers on the failure of an ATOL holder, it is surprising that they are not mentioned at all. 

What is even more surprising is that, in considering the pros and cons between total trust segregation and partial trust segregation, the consultation does not mention the cost borne by the acquirers upon an insolvency. It is obvious that, if acquirers will pick up (say) 50% of the cost of a failure, then there is no practical need for the CAA to require 100% segregation. It appears that no consideration is being given to the role of acquirers on a failure, nor how the ATOL scheme can better integrate with the liability of acquirers so that ATOL holders do not “double protect” the risk. This could be a real lost opportunity for the industry.

Why is segregation better for working capital?

The CAA’s report on the initial consultation noted that the “majority of ATOL holders and the travel industry do not believe that the CAA should put in place mandatory segregation of customer monies.”  The majority view was that “the CAA should allow ATOL holders to choose the form of financial security they use.”  The new consultation makes it clear that the CAA does not intend to grant the industry its wishes.

The CAA has expressed a clear preference for ATOL holders to segregate customer money as the means of providing insolvency protection.  In what some may consider to be perverse logic, the reason given is that it is said to improve the working capital of ATOL holders. 

In fact, what this really means is that mandatory segregation of customer monies will force ATOL holders to recapitalise their business so that they have the working capital available to finance their operations.  A cash injection will, of course, improve the working capital of ATOL holders. However, there are other ways in which the CAA typically require ATOL holders to maintain sufficient cash in the business, such as through cash-to-client money ratios and minimum liquidity levels. However, no analysis is given as to why these methods are considered inadequate and that only the mandatory segregation of client monies will do.

Next steps

With less than a week to go until the deadline for responding to the CAA’s call for evidence on ATOL reform, there is still time for stakeholders to make their views known.


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