The CAA is looking to axe its small business ATOL as holders are a greater risk while not paying a ‘fair’ and ‘proportionate’ amount towards the scheme.
It said the proposal, which is going out to the travel industry for a three month consultation, is intended to redress the balance of the protection scheme which the CAA views as no longer fair.
It also says it will reduce the likelihood of consumers being affected by insolvency and protecting the Air Travel Trust (ATT).
If it goes ahead, this will mean the current 900-odd small business ATOL holders will have to join one of the eight accredited bodies or an ATOL franchise rather than ‘go it alone’.
AITO said 26% of its membership – 33 companies – currently use the small business ATOL.
Small business ATOLs are for companies licensed to carry a maximum of 500 passengers a year.
Travel firms will still be able to apply for an ATOL but there will no longer be a ‘cheaper’ version available for small tour operators and agents under the proposed changes.
The regulatory body said: "The proposed withdrawal of the SBA licensing scheme is a significant change for smaller businesses, but there are now established alternative ways of meeting the regulatory requirements and any implementation will be phased in over a number of years."
Other changes to the ATOL scheme being proposed are introducing a more risk-based method of financial assessment for ATOL holders with licensable revenue of less than £5million.
The CAA is also proposing the development of online facilities which will enable ATOL holders to access self-service and self-assessment services in conjunction with the other changes.
Andy Cohen, head of ATOL at the CAA, said: "We are very aware that a financial protection scheme needs to be able to demonstrate that there is fair treatment for all licence holders and, furthermore, where it is clear that there is a higher risk of failure among some members then that needs to be reflected in the regulatory requirements.
"In addition, this is also consistent with better regulation, as the costs of regulation should be proportionate and increased requirements should only be targeted at business models which represent greater risk."
The consultation will run for three months until 6 October, 2014.
