The inexorable rise in Trust Accounts

trust account

The inexorable rise of Trust Accounts

Back in April, the CAA forced a radical shake-up of the UKs travel consortia. They shoehorned the 8 Accredited Bodies (ABs) into mandatory trust accounts in an attempt to address the systemic risk of a large consortium collapse taking several hundred members down with it.  This was the first step in the CAA’s grand plan to push more companies into ABs, abolish the Small Business ATOL (SBA) and effectively privatise the regulation of smaller companies. It was also a very bold statement of confidence in the trust account and its role in the future of consumer protection.

Trust accounts have been used as a means of complying with the Package Travel Regulations for many a year, and several consortia and large OTAs operated them long before April. However, this was the moment trust accounts went mainstream and by my estimates, well over £1bn of customer’s money will flow through them in the next 12 months.

Are the CAA right to place so much reliance on trust accounts? In theory, they provide an elegant consumer protection solution: They are flexible and scalable so the level of protected funds fluctuates with growth and seasonality in a way that fixed insurance bonds do not.

They enable “fulfillment”,  so a failed company’s forward bookings can be managed down,  benefiting consumers and suppliers whilst reducing the level of claims on the Air Travel Trust and the credit card companies.

They enable the travel sector to be more self-sufficient and less vulnerable to the whims of risk averse insurance companies and they encourage companies to be more responsible with their clients’ monies.

Nevertheless, trust accounts continue to polarise opinion. Whilst the CAA are clearly big fans, many in the industry view them with a deep suspicion, including ABTA who still require their members to protect non-air packages using the more tried and tested routes of bonding and financial failure insurance.

Their concerns are not entirely without grounds. Trust accounts are clearly more susceptible to fraud and human error than more established methods, and their effectiveness depends entirely on the quality of the appointed trustee.  In truth, we will only really know how robust they are when a large one collapses with money still in the coffers and the administrators have been defeated in the inevitable claims bun-fight.  

Neither do they work with all types of business model. They are far more suited to OTAs than say long haul operators or escorted group tours and making the transition into a trust puts a heavy burden on cash flow.

So whilst trust accounts undoubtedly have a part to play in the future of consumer protection, they certainly aren’t a panacea.  In order to create a fairer landscape, where small businesses can continue to flourish we need more creative thinking and a wider range of solutions. There is more work to be done.

This article first appeared in TTG August 2014