The UK Civil Aviation Authority has launched a consultation on ATOL.
The government body said the project will consider evolving the regulatory framework to improve financial resilience.
At present, some ATOL protected travel businesses use their customers’ advance payments for their holidays to fund their own operations, before the customers have had their holidays.
This is a long-standing practice in the industry, but in some cases it may fail to incentivise sufficiently robust financing arrangements.
The proposed changes will look at new approaches that would reduce the risk posed to consumers should any individual travel business cease to trade, the CAA said.
The Covid-19 pandemic has also further highlighted how challenging it was for some businesses to pay customers the refunds to which they were entitled.
“The travel industry can be reassured that we understand the impact that the Covid-19 pandemic has had on their finances.
“We will take full account of the need to allow industry to adjust to any new arrangements that will be implemented following the overall consultation process,” concluded Smith.