European Regulators Target $17.5B Cat Bonds in UCITS Funds

European regulators are taking aim at $17.5 billion worth of catastrophe bonds held in UCITS funds, deeming them too complex and risky for retail investors. The European Securities and Markets Authority (ESMA) has recommended excluding these instruments from UCITS portfolios, citing their exposure to natural disasters and potential for significant losses.

The MOVE could force a wave of sales in an already strained market, with nearly one-third of the global cat bonds market at risk. Major institutional players like Neuberger Berman and PGGM have voiced support for regulatory caution, highlighting liquidity risks and the potential for massive losses.

ESMA's warning follows earlier concerns about tokenized stocks, reinforcing a broader regulatory crackdown on complex financial products marketed to retail investors. The European Commission's decision could have destabilizing effects on the cat bonds market, with implications for institutional and retail investors alike.