The Civil Aviation Authority has reassured customers who have bookings with Lowcostholidays that their holidays will still be protected by the Atol scheme.
The news follows Lowcostholidays' decision to transfer its business from the UK to Spain on November 1.
The CAA said holidaymakers who booked before November 1 would continue to be protected, adding: "This is contrary to what the company told its customers."
The regulator said in a statement: "The CAA’s priority is that consumers receive the Atol protection they expected when they purchased their holiday.
"The short notice of the transfer and the company’s failure to provide timely information about it, mean that the CAA has been unable to understand why Lowcostholidays states that their customers’ Atol certificates are no longer valid. Today’s announcement should assure consumers that their money is safe and that their holiday retains its Atol protection."
Andy Cohen, head of Atol, said: “People who booked with Lowcostholidays bought an Atol protected holiday and we believe they deserve to be able to take an Atol protected holiday."
The CAA said a number of customers had been in touch who were worried about their protection. Consumer bodies and trade associations had also sought reassurance, it said.
For customers booking after November 1, the CAA confirmed that there would be no Atol cover and any protection available would be provided through the Spanish authorities.
It added: "We are in contact with our Spanish counterparts to ensure information on those arrangements can be made available to UK consumers."
Lowcost said customers who were unhappy with the new arrangement could receive a refund before November 8.
Speaking last week, Lowcost Travel Group chief executive Paul Evans said: “I have done everything legally and by the book. We are protecting customers offering package and accepting liability."
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