The ICMA Covered Bond Investor Council (CBIC) cited limitations in national transparency requirements and a lack of qualitative criteria as deficiencies in the European Covered Bond Council’s label initiative in a letter to the industry association on Friday, but welcomed the overall project.

The ECBC’s labelling initiative is running parallel to a transparency standards initiative of the CBIC, and Claus Tofte Nielsen, chairman of the investor body, said in the letter to ECBC chairman Paul O’Connor and European Mortgage Federation secretary general Annik Lambert that it wants to contribute to the project and help prevent a further dilution of the quality of covered bonds.

The CBIC said that the definition of core features of covered bonds in the Label Convention is “quite broad”, allowing all UCITS compliant covered bonds to qualify for it. The investor body noted specifically the eligibility for the label of those covered bonds backed by ship assets, an asset class that the European Central Bank has said may not be appropriate for such a quality mark.

The CBIC said that it understands that a broad definition will make it easier for the label to reach a critical mass, and that the label may ensure a clear demarcation between covered bonds and ABS, or covered bond-like instruments backed by new types of assets.

However, the CBIC said that “the broad criteria do not provide quality information about the labelled covered bonds to the investors”, and that “a label of ‘quality’ as understood by investors will have to rest on the reporting of quality and comprehensive information, in a standardised manner”.

The CBIC said that this will mean that “transparency will therefore be key for investors”. It said that its proposed transparency standards provide a template for this, particularly since it has recognised national differences in its initiative.

“The CBIC believes that the limited comprehensiveness of the national transparency requirements may prove problematic for investors to assess the quality of covered bond programmes,” said Tofte Nielsen. “The ECBC minimum transparency requirements are seen as the starting point and as part of a progression towards the CBIC transparency template.

“The CBIC would also encourage ECBC members to focus specifically on the standardisation of the reporting at European level – along the lines indicated in the CBIC template – to help investors to easily compare information.”