With some months now passed since the ESMA recommendation regarding the eligibility of catastrophe bonds within UCITS investment fund structures, Daniel Grieger of Plenum Investments has highlighted how national regulators are not all in agreement.The European Securities and Markets Authority’s (ESMA) to the European Commission not to allow catastrophe bonds as eligible assets in UCITS funds, a move that has gained wide attention across the industry., the recommendation has caused waves.Speaking during a recent webinar, Daniel Grieger, Partner at specialist catastrophe bond fund manager Plenum Investments AG, provided an update on what he is hearing on the process, and the upshot is he believes the ESMA recommendation does not align with the European Commission’s goals.

Grieger explained, “We have been very vocal about the proposed changes which are negative for the cat bond market, in our view.“But, only last week, we were joined in our criticism by the Luxembourg regulator, which, by the way, is a regulator which is very favourable towards cat bonds as well.“This is the Luxembourg regulator being quoted here as not being aligned with ESMA, and very much against the changes.

Because all those changes will prevent retail investors from investing in alternative investments such as gold commodities, REITs and cat bonds, and the Luxembourg regulator has the suspicion that ESMA’s proposals are not done for harmonisation reasons, or for other reasons, but for political reasons.” Grieger pointed to comments made by Marco Zwick, of Luxembourg’s Commission de Surveillance du Secteur Financier, in which he said the regulator was not in alignment with ESMA’s recommendations on UCITS.Zwick suggested that ESMA’s recommendations were misguided and potentially being done for political reasons, as Luxembourg and other regulators oppose a move to centralised regulation in Europe.Grieger said, “What we may be witnessing here is a kind of power struggle between national regulators, which may want to keep their power in supervising alternative investments, and ESMA, which may under the banner of harmonisation, want to get the power over those asset classes.” Grieger went on to say, “UCITS is a global brand which stands for well-regulated, well-diversified products.

It has been around for 40 years and of course, with anything that has been around for 40 years, it’s worthwhile to check whether there can be some change, some amendment, to improve what we already have.And this was very much the mandate given to ESMA.“In June this year, ESMA submitted their final report to the European Commission, but it’s very important that as of today, nothing has been decided.

This advice is non-binding, and the European Commission doesn’t even have to react on this advice.” Grieger went on to explain the timeline, saying that if the advice were to be followed by the European Commission, there would need to be another round of consultation which could take two years, then there would be an 18 month implementation phase, due to every European national parliament needing to agree.After which, given the far-reaching changes of the proposals ESMA made, there would also need to be an appropriate transitional period.“What we are looking here at is a level one change, a change which is done at the highest political hierarchy.

It is affecting the European Union Directives, and this is a change which takes years, and if there was anything decided in the future the impact of that would only be felt beyond the year 2031,” Grieger stated.Grieger further explained, “ESMA’s advice contradicts the goals of the Savings and Investments Union (SIU), which is an important project of the European Commission, as there would be less choice for retail investors.“The changes which are proposed, risk to destabilise the UCITS market and already now impact investor confidence.

“Cat bonds are standard securities.They are bonds and they are not insurance products, ESMA’s classification is wrong.ESMA also ignores the established market practices.

Several local regulators have already approved cat bonds as a UCITS eligible asset.We have seen one of them come forwards in Luxembourg, but Ireland or Lichtenstein would be other regulators.“The portfolio benefits of cat bonds are well documented and the social benefits of cat bonds to high-risk areas such as Florida for hurricanes or Italy, like earthquake risk are obvious.

There has never been a liquidity issue in cat bond funds for the last 25 years.And of course, here we have quite a clear contradiction to the goals of the Savings and Investments Union (SIU) because the choice to retail investors is diminished.” Grieger suggested that after the ESMA consultation, the European Commission is now set to take over the process and one of its representatives commented recently on LinkedIn about this.John Berrigan, Director-General Financial Stability, Financial Services and Capital Markets Union at the European Commission, wrote, “I want to thank ESMA for the Technical Advice on the UCITS Eligible Assets Directive, an implementing directive linked to UCITS, which it submitted to the Commission in June 2025.

This input will help ensure that the rules adequately reflect market developments and lead to greater supervisory convergence.“Building on ESMA’s work, the Commission plans to move forward with further public consultations and market analysis in 2026.Any possible review will have to balance responsible innovation, for instance enabling exposure to additional asset classes, with the need to ensure that retail investors continue to benefit from the strong protection that has made UCITS such a success around the world.” Grieger, of Plenum Investments, commented during the webinar that, “So where does this leave us now? In summary, the European Commission is taking over from here, and there will be another consultation.

This is expected for the second half of 2026, it’s a low priority for the European Commission.A much higher priority is the Savings and Investment Union, and this is also why we have such a slow timeline, no action is required right now, nothing will happen before 2030 for sure.“We are very confident also that cat bonds will remain accessible to retail investors beyond 2030, either directly as a UCITS or via a new regulatory format.” With such a long timeline ahead, it could be years before a clear direction on the eligibility of catastrophe bonds within UCITS fund structures is available.

But what is clear is that there is disquiet among European regulators and investment bodies, who feel the oversight of ESMA’s recommendations may be a step too far.It’s important to note that not everyone takes this view, with some sources telling us that the European Commission has been known to simply sign off on regulatory changes such as this, without really taking the time to understand the ramifications.It is to be hoped that is not the case with this important issue..

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