What: European financial regulators and catastrophe bond managers clash over retail investor access to the growing $55 billion market, as ESMA recommends excluding cat bonds from UCITS funds.

Why it is important: The conflict demonstrates how regulators are reassessing retail investor access to sophisticated financial products, balancing market development with consumer protection in an evolving investment landscape.

Asset managers specializing in catastrophe bonds are contesting ESMA's recommendation to exclude these investments from Europe's largest retail fund regime. Companies including Twelve Capital, Fermat Capital, and Plenum Investments argue against the proposed restrictions, which would limit cat bonds in UCITS funds to 10% indirect exposure. The market has grown from a niche instrument to a $55 billion asset class, offering investors higher returns than traditional fixed-income investments in exchange for assuming disaster-related risks. Currently, UCITS cat bond funds manage approximately $17 billion in assets, triple their 2020 value. While managers argue that the bonds' collateralization by highly-rated securities makes them safer than other alternative investments, ESMA cites concerns about market liquidity during catastrophic events and the bonds' insurance-like structure. The regulator's advice also extends to other alternative investments such as cryptocurrencies and REITs.

IADS Notes:

The debate over retail access to catastrophe bonds reflects broader trends in financial product regulation and consumer protection. According to Forbes in July 2025, the transformation of BNPL services into regulated financial products demonstrated regulators' increasing focus on retail investor protection . This aligns with the UK's May 2025 implementation of comprehensive BNPL regulations, as reported by Yahoo Finance, showing how authorities are strengthening oversight of retail financial products . Retail News Asia's May 2025 coverage of Revolut's expansion illustrated how financial products are evolving to meet sophisticated retail investor demands . The complexity of risk assessment was highlighted in Drapers' March 2025 report on EU sustainability directives, showing how regulators are developing more nuanced approaches to risk evaluation . This regulatory caution is particularly relevant given BCG's June 2025 findings that 54% of Europeans express economic pessimism , emphasizing the need to balance investment opportunities with robust consumer protection. Also, the need to rely on sound information has encouraged the IADS to launch the Global Retail Risk Index to provide its members with a clear database of facts.

Retail investors fight for right to bet on natural disasters