Mandatory Provident Fund Schemes Examination

A person makes a “material decision” if the person makes a decision in relation to the following matters:
(i) whether, or when, to apply to join or become a member of a particular MPF scheme;
(ii) whether, or when, to apply to participate in a particular MPF scheme as an employer;
(iii) whether, or when, to pay contributions to a particular MPF scheme, or to invest in a particular constituent fund of an MPF scheme;
(iv) the amount of contributions to be paid to a particular MPF scheme, or the amount to be invested in a particular constituent fund of an MPF scheme;
(v) whether, or when, to transfer accrued benefits from a particular MPF scheme to another particular MPF scheme, or from a particular constituent fund of an MPF scheme to another particular constituent fund of the MPF scheme;
(vi) the amount of accrued benefits to be transferred from a particular MPF scheme to another particular MPF scheme, or from a particular constituent fund of an MPF scheme to another particular constituent fund of the MPF scheme;
(vii) whether, or when, to transfer benefits from an occupational retirement scheme to a particular MPF scheme;
(viii) the amount of benefits to be transferred from an occupational retirement scheme to a particular MPF scheme;
(ix) whether, or when, to make a claim for the payment of accrued benefits from an MPF scheme; and
(x) the amount of a claim for the payment of accrued benefits from an MPF scheme.

A “regulated person” means (i) a registered intermediary (i.e., a principal intermediary or a subsidiary intermediary); or (ii) a responsible officer of a principal intermediary.

A mixed assets fund, which is also called a balanced fund, is an investment mix of bonds and equities (stocks). A typical mixed assets fund invests in both stock markets and bond markets, either globally or regionally (e.g. Asia or North American), in order to reduce the overall risk as well as to take advantage of investment opportunities in different markets and economies. Therefore, the risk level of this kind of fund is usually somewhere between that of a bond fund and an equity fund. Due to the investment mix of the fund, the expected return of a mixed assets fund is usually higher than that of a bond fund but lower than that of an equity fund.

The approval requirements in respect of a corporate trustee include:
(i) Capital adequacy and financial soundness
Corporate trustees must have paid-up share capital and net assets of at least $150 million each.
(ii) Suitability
(iii) Capability
(iv) Presence and control

A scheme member may choose not to exercise the right to transfer the accrued benefits. However, if a member decides to exercise such right, he/she should consider the following factors:
Trustee/scheme
 Range and quality of services
 Fees and charges
 Choices and suitability of funds

For relevant employees (other than casual employees) earning more than the maximum relevant income level (i.e. $30,000 per month), the employees’ mandatory contributions and the employers’ mandatory contributions are each capped at $1,500 per month. With any amount of relevant income, however, both the employer and the relevant employee can opt to make voluntary contributions. However, the amount of the employer’s voluntary contributions does not have to match the relevant employee’s amount.

The trustee of an MPF scheme is the central party responsible for all scheme administration and management functions. The appointed service providers are listed below:
(a) Investment Managers
(b) Custodians
(c) MPF Intermediaries

There are three types of MPF scheme:
(a) Employer Sponsored Scheme
(b) Master Trust Scheme
(c) Industry Scheme

The key characteristics of the MPF System are as follows:
(a) Mandatory participation
(b) Employment-based
(c) Defined contribution
(d) Privately-managed
(e) Fully-funded

The MPF System is employment-based. Under the MPF System, employers select MPF trustee(s), join one or more schemes, and then enroll their relevant employees in the chosen scheme(s). Relevant employees then choose among the funds offered by the scheme(s) chosen by their employers. Relevant employees and their employers are required to make regular mandatory contributions. Self-employed persons enroll in a scheme of their own choice, regardless of their level of income, unless they are exempt persons.

For application for registration as a principal intermediary for carrying on regulated activities under section 34T(1) of the MPFSO,
(i) the principal applicant must be a Type A regulatee of an industry regulator;
(ii) within 1 year immediately before the date of the application, the principal applicant has not had any qualification as a Type A regulatee revoked on disciplinary grounds (section 34J(1) of the MPFSO);
(iii) the principal applicant does not have any qualification as a Type A regulatee suspended (section 34J(2) of the MPFSO);
(iv) within 1 year immediately before the date of the application, the principal applicant has not had a registration as a registered intermediary revoked by the MPFA under section 34ZW(3)(a)(i) of the MPFSO; and
(v) the principal applicant is not disqualified by the MPFA under section 34ZW(3)(a)(ii) of the MPFSO from being registered as an intermediary for carrying on regulated activities.

Section 34L(2) of the MPFSO prohibits a person from holding themselves out as carrying on regulated activities in the course of the person’s business or employment; or as carrying on regulated activities for reward.

Section 103 of the SFO makes it an offence to issue to the public any advertisements on MPF schemes and approved pooled investment funds unless they are authorized by the SFC or are exempt under the SFO. A breach of section 103 of the SFO carries a maximum fine of $500,000 and 3 years of imprisonment (plus a further fine for each day the offence continues).

MPFA will receive complaints in relation to MPF sales and marketing activities. It will conduct initial processing of the complaints. If the information provided suggests a possible breach of the conduct requirements, it will refer the complaints to the relevant FRs for consideration of initiating investigation. FRs will be responsible for the investigation of relevant registered MPF intermediaries. In misconduct cases, MPFA will be the sole authority to impose disciplinary sanctions, taking into account the information obtained by FRs in the course of their investigation and the representation of the intermediaries concerned.

MPF Exempted ORSO Schemes
These schemes satisfy the requirements for applying for MPF exemption certificates. They can be ORSO registered schemes or exempt schemes, and can be either closed or open to new members.

To qualify for MPF exemption, the scheme must be an “ORSO exempted scheme” or a “relevant ORSO registered scheme” as defined in the Mandatory Provident Fund Schemes (Exemption) Regulation (the “Exemption Regulation”). Other exemption criteria may also need to be satisfied.

The MPFA maintains a register of all registered MPF intermediaries which can be accessed by the public through the internet. The public may also check an MPF intermediary’s registration status by:
(i) calling the MPFA hotline on 2918 0102; or
(ii) visiting the MPFA offices.

Authorized financial institution means an authorized institution as defined by section 2(1) of the Banking Ordinance. Under the Banking Ordinance, an authorized institution means (a) a bank; (b) a restricted licence bank; or (c) a deposit-taking company.

Bond funds can be categorized by the term to maturity of the bonds in which they invest. Long-term bond funds invest in bonds with at least 10 years to maturity; medium-term bond funds in bonds with 3 to 10 years to maturity and short-term bond funds in bonds of less than 3 years to maturity.

Bond funds can be categorized by the term to maturity of the bonds in which they invest. Long-term bond funds invest in bonds with at least 10 years to maturity; medium-term bond funds in bonds with 3 to 10 years to maturity and short-term bond funds in bonds of less than 3 years to maturity.

All retirement schemes operated in and from Hong Kong need to be registered under ORSO, except those which fall within one of the following categories:
(i) Schemes contained in or established by any ordinance other than the ORSO (for example, an MPF scheme established under the MPFSO);
(ii) Schemes set up by the government of a country or territory outside Hong Kong or its agency not operating for the purpose of gain;
(iii) Schemes that satisfy the criteria for ORSO exemption.

If the employer decided to continue their ORSO scheme, the scheme would now be in one of the following forms:
(a) MPF Exempted ORSO Scheme with Open Membership
(b) MPF Exempted ORSO Scheme with Closed Membership
(c) “Top-up” ORSO Scheme
(d) “Frozen” ORSO Scheme

There are three categories of trustees:
(a) local corporate trustee;
(b) offshore (outside Hong Kong) corporate trustee; and
(c) individual (natural person) trustee.

In general terms, the duties of trustees would include the following:
(a) to secure scheme registration;
(b) to ensure maintenance of adequate capital and professional indemnity insurance;
(c) to maintain investment policy statements, control objectives and internal control procedures;
(d) to exercise a level of care, skill, diligence and prudence;
(e) to ensure that the funds of the scheme are invested in different investments so as to minimize investment risks;
(f) to act in the interest of scheme members and in accordance with the governing rules of the scheme;
(g) to provide information to scheme members, including scheme information, notices of participation and benefit statements;
(h) to receive contributions and verify mandatory contribution calculations;
(i) to process transfer and payment requests;
(j) to keep proper accounting records and members’ register; and
(k) to prepare and lodge annual audited financial statements, scheme reports and investment reports of MPF schemes with the MPFA.

Money market funds mainly invest in short-term instruments such as treasury bills, certificates of deposit, commercial papers. This type of funds is the least risky compared with other types of funds, but its return is usually slightly higher than that earned from savings deposits.

A bond fund primarily invests in bonds which are debt securities issued by governments, public utilities, banks, commercial organizations and supranational agencies like the World Bank. A bond issuer promises to pay interest during the life of the bond and repay the principal upon maturity of the bond. A bond fund may earn its income from interests generated by the bonds held by the fund. The fund may either hold the bonds till maturity and get back the principal from the issuers, or trade the bonds, taking advantage of market movements. Generally, a bond fund aims to achieve a modest but stable level of income; capital appreciation is of secondary importance.

A mandatory contribution is in arrears if it is not paid by the contribution day of a contribution period. The defaulter is liable to pay the contribution in arrears and a contribution surcharge. A financial penalty may also be imposed on the defaulter.

Personal account refers to an account in an MPF scheme which mainly receives the accrued benefits attributable to a member’s former employment or self-employment transferred from other MPF account(s). Personal accounts can also receive accrued benefits attributable to a member’s current employment transferred from a contribution account during current employment under Employee Choice Arrangement (“ECA”).

The advantage of a trust arrangement is that even if the scheme trustee, other service providers or the employer is in financial difficulties, the creditor cannot request the trustee, other service providers or the employer to make use of the assets under trusteeship to repay a debt. In other words, trust arrangement provides basic protection for scheme members’ assets.

“Contribution account” refers to an account in an MPF scheme which mainly receives MPF contributions (both employer and employee portions) made by an employer in respect of a relevant employee under current employment. Contribution account can also receive MPF contributions made by a self-employed person while self-employed.