Mandatory Provident Fund Quiz 02

Correct: Under the Employee Choice Arrangement (ECA), employees are granted the right to transfer accrued benefits derived from their own mandatory contributions made during current employment to an MPF personal account of their choice once per calendar year. Additionally, any mandatory contributions from former employment or self-employment that have been consolidated into the current contribution account are fully portable and can be transferred to a personal account or another contribution account at any time. Furthermore, if an employee is a member of an employer-sponsored scheme, they are required by regulation to transfer their benefits out of that scheme upon ceasing employment, as eligibility is tied to that specific employer.

**Incorrect:** The ECA does not permit the transfer of the employer’s portion of mandatory contributions attributable to the current employment while the employee is still working for that employer; these must remain in the original scheme selected by the employer. It is also incorrect to assume that employee mandatory contributions from current employment can be transferred to another contribution account; they are restricted to being transferred into a personal account.

**Takeaway:** While the ECA significantly increases the portability of MPF benefits by allowing employees to manage their own contribution portion and former benefits, the employer’s mandatory contributions for the current job remain non-transferable until the employment contract ends. Therefore, all of the above statements are correct.

Correct: Statements I and II are accurate because the Mandatory Provident Fund Schemes Ordinance (MPFSO) requires the MPFA to observe procedural fairness by issuing a written notice of its preliminary view and allowing the regulated person to make representations, which can be either oral or written. Statement III is also correct as the statutory timeframe for an aggrieved party to lodge an appeal with the Mandatory Provident Fund Schemes Appeal Board is two months from the date the notice of the decision is given.

**Incorrect:** Statement IV is incorrect because while Frontline Regulators (such as the HKMA, SFC, or Insurance Authority) are responsible for conducting the actual investigations into potential misconduct, the MPFA remains the sole authority empowered to determine and impose disciplinary sanctions under the MPFSO.

**Takeaway:** The MPF disciplinary framework balances investigative duties with procedural safeguards, ensuring intermediaries have a right to be heard and a clear two-month window for independent appeals, while centralizing the final sanctioning power within the MPFA. I, II & III only. Therefore, statements I, II and III are correct.

Correct: Statements I, II, and IV are accurate according to the Mandatory Provident Fund Schemes Ordinance and the MPFA Compliance Standards. Specifically, if a scheme opts for individual trustees rather than a corporate trustee, there must be at least two individuals appointed. These individuals must provide a performance guarantee (insurance or bank guarantee) equivalent to 10% of the scheme’s net asset value, capped at HK$10 million. Furthermore, under Compliance Standard 2, the Board of Directors is explicitly required to endorse the trustee’s compliance policy to foster a positive compliance culture.

**Incorrect:** Statement III is incorrect because the requirement for an individual trustee to be ordinarily resident in Hong Kong is a fundamental statutory qualification. The regulatory framework does not provide for a waiver of this residency requirement based on professional experience, as residency is essential for the MPFA to exercise effective legal and supervisory jurisdiction over the individual.

**Takeaway:** Individual trustees in the MPF system are subject to strict residency, character, and financial security requirements, including the provision of a performance guarantee and adherence to structured compliance standards endorsed at the Board level. Therefore, statements I, II and IV are correct.

Correct: Under the Mandatory Provident Fund Schemes (Exemption) Regulation, while the general deadline for MPF exemption applications was 3 May 2000, an exception is made for successor schemes. A successor scheme established due to a genuine business transaction, such as a corporate restructuring or merger, can still be granted MPF exemption. Furthermore, employees who were considered “existing members” of the original MPF-exempted ORSO scheme (those who joined on or before 1 December 2000) are permitted to retain that status in the successor scheme, which means they remain exempt from the “Minimum MPF Benefits” preservation and portability requirements that apply to new members.

**Incorrect:** The suggestion that all members must be treated as “new members” is incorrect because the regulation specifically allows for the continuity of “existing member” status during a valid transfer to a successor scheme. The claim that no exemptions can be granted after the May 2000 deadline ignores the specific legal provision for successor schemes. Additionally, obtaining MPF exemption does not remove an ORSO scheme from the jurisdiction of the Occupational Retirement Schemes Ordinance; the scheme must continue to comply with ORSO requirements in addition to the Exemption Regulation.

**Takeaway:** Successor schemes provide a vital regulatory bridge during business restructurings, allowing an ORSO scheme to maintain its MPF-exempted status and permitting long-tenured employees to keep their “existing member” benefits despite the change in corporate structure.

Correct: Under the MPFA Guidelines on Conduct for Registered Intermediaries, offering direct monetary incentives such as cash gifts or rebates to a client’s personal bank account to encourage a scheme transfer is prohibited. The regulations aim to ensure that clients make decisions based on the merits of the MPF scheme rather than short-term financial inducements that do not benefit their long-term retirement savings.

**Incorrect:** The guidelines provide specific exceptions where incentives are allowed. These include discounts on the intermediary’s own fees, the provision of bonus units or credits directly into the client’s MPF account, and non-monetary benefits associated with membership programs that have been approved by the scheme’s trustee or sponsor. These are considered acceptable because they either reduce the cost of the service or enhance the value within the MPF system itself.

**Takeaway:** Registered intermediaries must avoid offering any unauthorized rebates or gifts that might influence a client’s decision to join or transfer schemes, unless the incentive is a permitted form such as bonus units or a reduction in the intermediary’s own direct fees.

Correct: Class G insurance policies are specific insurance-based investment instruments within the MPF system that offer guarantees on capital or investment returns. To ensure the security of these guarantees, the policy must be supported by a guarantor. This guarantor can either be the insurance company that issues the policy or an external financial institution that has been authorized by the Monetary Authority (MA). This regulatory requirement ensures that the promised guarantee is backed by a sufficiently regulated entity.

**Incorrect:** Money market funds focus on capital preservation and short-term interest by investing in short-term securities like certificates of deposit, not beating inflation through a mix of equities and long-term bonds. Bond funds aim to maximize interest income and are typically quoted every trading day, rather than being restricted to month-end quotations for the purpose of minimizing volatility. Equity funds are characterized by high volatility and the pursuit of aggressive capital growth, which contradicts the description of them as low-volatility instruments seeking returns slightly above savings rates.

**Takeaway:** Understanding the distinct risk-return profiles of different fund types and the specific regulatory safeguards—such as the guarantor requirement for Class G insurance policies—is essential for identifying the appropriate investment vehicle for a scheme member’s specific financial objectives.

Correct: Statement I is correct because substitute workers in the catering and construction industries are generally classified as casual workers under the MPF System, even if they are performing another person’s job for a short period and are paid in cash. Statement III is correct as cash allowances provided by an employer that an employee may spend as they see fit are classified as relevant income. Statement IV is correct because reimbursements for expenses incurred by the employee for employment-related goods and services (such as uniform laundry or professional fees) are specifically excluded from the definition of relevant income.

**Incorrect:** Statement II is incorrect because shareholders whose only source of income is dividends are neither employees nor self-employed persons (SEPs) under the Mandatory Provident Fund Schemes Ordinance. Dividends represent a return on investment rather than income derived from an employment contract or the rendering of services in a business capacity.

**Takeaway:** For MPF purposes, relevant income includes most forms of monetary remuneration like wages and cash allowances but excludes reimbursements for business expenses. Furthermore, coverage depends on the existence of an employment relationship or self-employment in a trade or business, which excludes pure investors like dividend-only shareholders. The correct combination is I, III & IV only. Therefore, statements I, III and IV are correct.

Correct: Under the Mandatory Provident Fund Schemes (General) Regulation and related codes, an Approved Pooled Investment Fund (APIF) structured as an insurance policy must be issued by an authorized insurer as a Class G insurance policy. Class G policies are specifically designed for long-term retirement-related benefits and typically provide a guarantee on capital or returns. Furthermore, such policies must also be authorized as collective investment schemes by the Securities and Futures Commission (SFC) under the Securities and Futures Ordinance.

**Incorrect:** Class A insurance policies refer to ordinary life insurance and are not the designated category for MPF APIFs. Regarding jurisdiction, all APIFs, whether unit trusts or insurance policies, must be governed by Hong Kong law to ensure regulatory oversight and member protection; offshore legal frameworks are not acceptable for these structures. Finally, SFC authorization is a mandatory requirement for these funds to be offered as collective investment schemes, and MPFA approval alone does not exempt them from this requirement.

**Takeaway:** For an insurance-based APIF to be compliant, it must be a Class G policy issued by an authorized insurer, governed by Hong Kong law, and authorized by the SFC.

Correct: Statements I, III, and IV accurately reflect the regulatory requirements for Principal Intermediaries (PI) under the Mandatory Provident Fund Schemes Ordinance (MPFSO) and Guidelines VI.2. A PI is required to maintain training records and supporting evidence for its subsidiary intermediaries (SI) for at least three years. It must also ensure that the Responsible Officer (RO) is empowered with sufficient authority and resources to perform their duties. Additionally, for telephone marketing, the PI must implement specific controls including compliance guidelines and call logs.

**Incorrect:** Statement II is incorrect because the notification requirements are not limited to the withdrawal of consent. Under sections 34ZE and 34ZI of the MPFSO, a PI must notify the MPFA of various changes relating to registered intermediaries, such as changes in particulars or when an SI ceases to be attached to the PI, not just when the PI proactively withdraws consent.

**Takeaway:** A Principal Intermediary must maintain a comprehensive compliance framework that includes rigorous supervision of subsidiary intermediaries, adequate support for the Responsible Officer, and detailed record-keeping for training and marketing activities to ensure adherence to MPF regulations. Therefore, statements I, III and IV are correct.

Correct: When a client insists on selecting a constituent fund with a risk level higher than their assessed risk profile (a risk mismatch), the registered intermediary is required to inform the client of the mismatch and explain the specific risks associated with the fund. The intermediary must also confirm that the choice is the client’s own decision, obtain the client’s reasons for the choice, and document these details. This document must be signed by the client, with the original kept by the principal intermediary for a minimum of seven years and a copy provided to the client. Additionally, the conversation regarding the mismatch should be audio-recorded or followed up with a post-sale confirmation.

**Incorrect:** Refusing to process the transaction is not a requirement; the guidelines allow the client to proceed as long as the mismatch is properly disclosed and documented. Relying solely on a verbal confirmation is insufficient because the guidelines mandate a signed document to ensure a proper audit trail. Simply providing a standard offering document does not satisfy the specific requirement to explain the mismatch and the reasons why the fund may not be suitable for that specific client’s profile.

**Takeaway:** In the event of a risk mismatch, the intermediary must ensure the client is fully informed of the risks, document the client’s rationale for the decision, and maintain signed records for at least seven years to comply with MPFA conduct requirements.

Correct: Under the Mandatory Provident Fund (MPF) disclosure requirements, the Fund Expense Ratio (FER) is intended to reflect the total impact of fees on a fund’s assets. If a constituent fund invests in one or more Approved Pooled Investment Funds (APIFs), the calculation must account for the fees and charges incurred at that underlying APIF level. This ensures that the ratio accurately represents the cumulative cost burden to the scheme member, rather than just the costs at the top-level constituent fund.

**Incorrect:** The regulatory framework does not require funds with less than two years of operational history to disclose an FER, as a shorter timeframe may not provide a stable or representative measure of expenses. The Annual Benefit Statement (ABS) is a historical summary of the member’s account rather than a forward-looking projection, and it must be issued within three months of the scheme’s financial period end, not six months. Additionally, the FER is a retrospective measure based on actual expenses incurred as a percentage of fund size, not a projection of future costs.

**Takeaway:** To ensure full transparency, the FER must include underlying APIF fees where applicable, and the ABS must be delivered to members within a strict three-month window following the end of the financial period.

Correct: Statements I, III, and IV accurately reflect the regulatory framework for the Mandatory Provident Fund (MPF) in Hong Kong. While mandatory contributions are strictly regulated by legislation regarding vesting, preservation, and withdrawal, voluntary contributions are governed by the specific rules of the chosen MPF scheme. For employees earning below the minimum relevant income level (currently $7,100 per month), the employee is exempt from making mandatory contributions, but the employer is still required to contribute 5% of the employee’s relevant income. Additionally, assets derived from voluntary contributions are protected by the same indemnity insurance as mandatory contributions.

**Incorrect:** Statement II is incorrect because the MPF legislation specifies that scheme assets derived from voluntary contributions are managed by the same approved trustees, qualified investment managers, and custodians responsible for the mandatory contribution assets. There is no requirement for separate service providers to manage voluntary contributions.

**Takeaway:** Voluntary contributions provide flexibility in terms of vesting and withdrawal as defined by scheme rules, yet they remain subject to the same rigorous management standards and insurance protections as mandatory contributions. Therefore, statements I, III and IV are correct.

Correct: Statements I, III, and IV are correct. Chauffeurs employed by individuals are covered by the MPF system because their services are not rendered within a residential premises. Self-employed persons, such as private tutors, are mandatory participants in the MPF system regardless of where they provide their services. Additionally, employees who work in Hong Kong but reside outside the territory (such as those commuting daily from Shenzhen) are considered to be employed in Hong Kong and must be enrolled in an MPF scheme.

**Incorrect:** Statement II is incorrect because the Mandatory Provident Fund Schemes Ordinance specifically exempts domestic employees from coverage if their services are rendered wholly or substantially in the residential premises of the employer. This exemption applies to security guards, gardeners, and baby sitters working at the employer’s home.

**Takeaway:** MPF coverage is determined by the nature of the employment and the location of service delivery; while most employees and self-employed persons in Hong Kong are covered, domestic staff working within a residential setting are a notable exception. Therefore, statements I, III and IV are correct.

Correct: The Mandatory Provident Fund Schemes (Fees) Regulation is the specific statutory instrument that prescribes the amounts and types of fees payable to the MPFA. This includes fees for the registration of schemes, approval of trustees, and applications for the winding up or restructuring of MPF schemes.

**Incorrect:** The Mandatory Provident Fund Schemes (General) Regulation focuses on the operational standards, contribution requirements, and investment rules of the schemes but does not define the fee schedule. The Mandatory Provident Fund Schemes (Exemption) Regulation is specifically concerned with the requirements for ORSO schemes to be exempted from MPF requirements. The Code on MPF Investment Funds provides guidelines on the types of assets a fund can hold and disclosure requirements, rather than administrative fees.

**Takeaway:** When identifying the specific costs payable to the MPFA for administrative approvals, registration of intermediaries, or scheme restructuring, the Fees Regulation is the primary regulatory source.

Correct: Under the Mandatory Provident Fund Schemes Ordinance and related guidelines, relevant income is broadly defined to include any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite, or allowance expressed in monetary terms. In this scenario, the base salary, the performance-based commission, and the cash housing allowance all fall within this definition as they are monetary payments arising from the employment relationship. These items must be aggregated to determine the total relevant income for the contribution period.

**Incorrect:** Excluding the cash housing allowance is incorrect because any allowance paid in cash is considered part of the employee’s relevant income. Including the reimbursement for business travel expenses is incorrect because a reimbursement for actual out-of-pocket expenses incurred on behalf of the employer is not considered a gain or reward for services rendered, and thus does not constitute relevant income. Options that omit the commission are also incorrect, as commissions are explicitly listed as a component of relevant income in the regulatory framework.

**Takeaway:** For the purpose of calculating MPF contributions, relevant income covers almost all forms of monetary remuneration paid to an employee, including allowances and bonuses, but specifically excludes items like severance payments, long service payments, and reimbursements for actual business-related expenses.

Correct: A soft guarantee in an MPF context is defined by the presence of qualifying conditions that a member must satisfy to receive the promised return. These conditions often include a minimum period of investment or staying within the scheme until a specific age or event occurs. If these conditions are not met, the guarantee may not apply, distinguishing it from a hard guarantee which has no such prerequisites.

**Incorrect:** A hard guarantee does not require a ‘career average’ or any other qualifying condition; it is provided unconditionally. The Fund Fact Sheet (FFS) is a regulatory requirement but is issued on a half-yearly basis (every six months), not every three months. Regarding contributions, for a non-casual employee, the mandatory contribution is generally 10% of relevant income in total, but this is split equally (5% each) between the employer and the employee, rather than being paid solely by the employer.

**Takeaway:** MPF members should distinguish between hard guarantees (unconditional) and soft guarantees (conditional), and recognize that the Fund Fact Sheet is the primary half-yearly report for monitoring fund performance and risk.

Correct: Statement I is correct as Class G insurance policies, which provide guarantees on capital or return, must be backed by a guarantor; this can be the insurance company itself or a third-party financial institution authorized by the Monetary Authority (MA). Statement II is also correct because money market funds (often called cash funds) focus on capital preservation and liquidity by investing in short-term interest-bearing securities like certificates of deposit and treasury bills.

**Incorrect:** Statement III is incorrect because the objective of beating the inflation rate with modest growth in income and capital describes a Balanced Fund (Mixed Asset Fund), whereas an Equity Fund aims for high capital growth to beat market performance. Statement IV is incorrect because all MPF investment funds, including bond funds, are subject to risks arising from social, political, economic, and currency changes in the countries where the investments are made.

**Takeaway:** MPF scheme members should understand that while different funds have specific primary risks (like interest rates for bonds or market volatility for equities), all funds are universally exposed to the macro-environmental risks of their investment jurisdictions. Therefore, statements I and II are correct.

Correct: Under the Mandatory Provident Fund (MPF) system, employers are required to make mandatory contributions for their relevant employees from the very first day of employment. However, regular employees (non-casual) are entitled to a ‘contribution holiday,’ which means they are not required to make their portion of mandatory contributions for the first 30 days of employment, plus any incomplete contribution period that immediately follows those 30 days. In this scenario, the 30th day of employment falls in November, and the first complete wage period (calendar month) commencing after the 31st day of employment begins on December 1st. Therefore, the employee is exempt from contributions for October and November, while the employer must contribute for the entire duration of employment starting from October 12.

**Incorrect:** The suggestion that both the employer and employee share a contribution holiday is incorrect because the holiday applies exclusively to the employee’s portion of contributions. The claim that the employee must start contributing exactly on the 31st day of employment is also inaccurate, as the law specifies that the contribution starts from the first complete wage period following that 30-day window. Finally, the level of income (being above $7,100) determines whether a contribution is required at all, but it does not waive the statutory contribution holiday period granted to new employees.

**Takeaway:** While employers must contribute to the MPF scheme from an employee’s first day of work, regular employees benefit from a contribution holiday that typically exempts them from making their own contributions for the first one to two months, depending on their start date and wage period cycle.

Correct: The Monetary Authority (MA) is tasked with regulating authorized institutions, such as banks, that participate in the MPF System. This oversight includes ensuring these institutions maintain financial soundness when they serve as custodians, guarantors for investment products, or providers of continuous financial support to other scheme service providers.

**Incorrect:** The Securities and Futures Commission (SFC) is primarily responsible for authorizing MPF schemes and funds, vetting disclosure documents, and supervising intermediaries whose core business is securities. The Insurance Authority (IA) ensures insurance companies meet liability requirements and supervises insurance-based intermediaries. The Mandatory Provident Fund Schemes Authority (MPFA) is the overall administrative body but delegates the prudential supervision of banks to the MA.

**Takeaway:** While the MPFA oversees the MPF system as a whole, the Monetary Authority is specifically responsible for the financial stability and supervision of banks acting as service providers or guarantors within that system.

Correct: Under the Mandatory Provident Fund Schemes Ordinance, “pickle charges” (fees for appetizers or snacks provided on the table) that are collected by the employer and subsequently distributed to employees are classified as relevant income. These are considered an implied term of the employment contract and represent a monetary benefit provided to the employee through the employer’s business operations.

**Incorrect:** Tips that are paid directly by customers to employees, such as cash left on a table or placed in a shared tin box without any employer intervention or collection, do not constitute relevant income. Additionally, non-monetary benefits such as meal vouchers or parking coupons are excluded from the definition of relevant income as they are not cash payments provided for the benefit of the employee.

**Takeaway:** To be classified as relevant income for MPF purposes, a payment must generally be a monetary sum provided by or through the employer; direct payments from third parties and non-monetary perks are typically excluded.

Correct: Substitute workers in the catering and construction industries are specifically recognized under the MPF System as being covered. These individuals are typically classified as casual workers, even if they are only performing another person’s duties for a few days and receive their remuneration in cash directly from the person they are replacing rather than the business owner. This ensures that short-term labor in these specific sectors remains within the social security net.

**Incorrect:** It is a common misconception that because the payment comes from a colleague or is paid in cash, the worker is exempt from the MPF System or must be classified as a self-employed person. Furthermore, payments for labor are distinct from reimbursements; while reimbursements for specific employment-related expenses (like professional fees or uniform laundry) are not considered relevant income, cash payments for performing work duties are treated as relevant income for MPF purposes.

**Takeaway:** The MPF System specifically includes substitute workers in the catering and construction sectors to ensure that temporary or informal labor arrangements do not result in a loss of retirement protection coverage.

Correct: According to the MPFA Guidelines on Conduct for Registered Intermediaries (specifically Section III.29 and III.30), when a client insists on a fund that exceeds their assessed risk profile (a risk mismatch), the intermediary must inform the client of the mismatch, explain the risks, and confirm the decision is the client’s own while documenting their reasons. The intermediary is also required to obtain a signed acknowledgement, provide a copy to the client, and ensure the principal intermediary retains the original for at least seven years. Additionally, an audit trail must be created via audio recording or, if unavailable, through a post-sale call or confirmation.

**Incorrect:** It is insufficient to merely note the client’s preference without formal documentation and disclosure. The intermediary cannot bypass the risk mismatch procedures even if the client is insistent. Failing to provide the client with a copy of the signed acknowledgement or failing to maintain the records for the mandatory seven-year period would constitute a breach of the conduct guidelines.

**Takeaway:** In cases of risk mismatch, registered intermediaries must follow a rigorous process of disclosure, client confirmation, documentation, and record-keeping to ensure the client understands the risks and to maintain a robust audit trail. Therefore, all of the above statements are correct.

Correct: According to the MPFA Guidelines, the processing of a client’s instruction does not need to wait for the completion of the post-sale call. If the client cannot be reached after several reasonable attempts, the principal intermediary must send a written document to the client. This document serves to confirm that the intermediary provided the offering document, explained the key features of the scheme and funds, and advised the client to read the materials carefully before making their decision. Additionally, all records of these attempts and correspondence must be maintained for a minimum of seven years.

**Incorrect:** It is incorrect to state that the processing of the client’s instruction must be halted or suspended, as the guidelines specifically allow processing to continue regardless of the post-sale call status. Notifying the regulator for a waiver is not a requirement under these circumstances, as the guidelines provide a specific alternative (sending a confirmation document). Furthermore, a retention period of three years is insufficient, as the regulatory requirement for keeping these records is a minimum of seven years.

**Takeaway:** When a client is unreachable for a post-sale call after multiple attempts, the intermediary must fulfill their disclosure obligations by sending a confirmation document to the client and must retain all related records for at least seven years.

Correct: Statement I is accurate because according to MPF regulations, if the most recent notice of assessment from the Inland Revenue Department was issued more than two years ago, the self-employed person (SEP) should declare an amount equal to the previous year’s assessable profits as their relevant income. Statement II is also correct as SEPs who suffer a net loss in their business can lodge a statement with the trustee to discontinue mandatory contributions until their relevant income once again exceeds the minimum level ($85,200 per year).

**Incorrect:** Statement III is incorrect because the permitted period for a self-employed person to become a member of an MPF scheme is 60 days, not 30 days. Statement IV is incorrect because if an SEP cannot produce evidence of income and the trustee is not satisfied with the reason provided, the law stipulates that the relevant income will be taken as the maximum level ($360,000 per year), rather than the minimum level.

**Takeaway:** Self-employed persons are subject to specific income assessment rules involving the Inland Revenue Department’s notices; failure to provide satisfactory evidence of income results in being assessed at the maximum statutory contribution level. Therefore, statements I and II are correct.

Correct: Statements I, II, and III are correct. According to the valuation principles for MPF funds, the Net Asset Value (NAV) per unit is calculated by taking the aggregate market value of the fund’s underlying investments, adding any cash holdings, and subtracting all administrative and management fees that have been accrued to date. This ensures that the unit price reflects the true net worth of the fund’s assets available to members.

**Incorrect:** Statement IV is incorrect because the NAV calculation must be based on the current market value (fair value) of the underlying investments to reflect current market conditions. Using the historical purchase cost would result in an inaccurate valuation of the scheme members’ accrued benefits and would not comply with standard accounting and regulatory practices for investment funds.

**Takeaway:** To determine the NAV per unit of an MPF fund, the net assets (market value of investments plus cash minus accrued expenses) must be divided by the total number of units issued. Therefore, statements I, II and III are correct.