Mandatory Provident Fund Quiz 06

Correct: Statements I, III, and IV are accurate reflections of the regulatory requirements for Principal Intermediaries (PIs) under the Mandatory Provident Fund Schemes Ordinance (MPFSO) and related Guidelines. Section 34ZL(3) explicitly requires a PI to provide its Responsible Officer (RO) with sufficient authority and resources. Furthermore, Guidelines VI.2 specify that PIs must maintain call logs for telephone marketing activities and define a “client” to include any person invited or induced to make a material decision regarding an MPF scheme.

**Incorrect:** Statement II is incorrect because the specific record-keeping requirement for subsidiary intermediaries’ training records and documentary evidence (such as certificates of attendance) is a minimum of three years, as per Guideline III.60(k). While seven years is a common retention period for other financial records in Hong Kong, it is not the specific requirement for MPF training records mentioned in this section of the Guidelines.

**Takeaway:** A Principal Intermediary is responsible for maintaining a rigorous compliance framework that includes empowering the Responsible Officer, monitoring marketing activities through call logs, and retaining training records for at least three years to ensure all subsidiary intermediaries remain qualified and compliant. Therefore, statements I, III and IV are correct.

Correct: Service charges or tips that are collected by the employer (such as those added to credit card bills or included as a standard service fee) and then distributed to employees are considered relevant income. Because these funds are processed and distributed by the employer, they fall under the scope of earnings arising from employment for MPF contribution purposes.

**Incorrect:** Tips paid directly by customers to employees, such as cash left on a table, are not considered relevant income because the employer does not intervene in the collection or distribution. Payments made for significant personal events, such as marriage gifts, are also excluded from the definition. Furthermore, medical reimbursements are not treated as relevant income as they are often payments made pursuant to insurance contracts or specific health benefits rather than remuneration for work.

**Takeaway:** To be classified as relevant income for MPF purposes, a payment must generally be a monetary reward arising from employment that is handled or distributed by the employer, while excluding specific statutory payments, personal event gifts, and non-monetary benefits.

Correct: According to the Mandatory Provident Fund Schemes Ordinance, an employer is required to provide a monthly pay-record to each relevant employee (excluding casual employees in an industry scheme) within 7 working days after the last contribution payment is made for that month. This record must contain specific details including the employee’s relevant income, the amount of contributions made by both the employer and the employee, and the date the contributions were paid to the trustee.

**Incorrect:** The suggestion that pay-records are only required upon an employee’s written request is incorrect because the legislation imposes a proactive duty on the employer to provide them. Including casual employees in industry schemes in this specific requirement is also incorrect, as they are exempted from the employer-issued pay-record rule (as they receive records through other means). Furthermore, a 10-day notification period for pay-records is inaccurate, as the statutory limit is specifically 7 working days after the payment date.

**Takeaway:** Employers must ensure transparency by providing employees with a pay-record within 7 working days of the MPF contribution payment, allowing employees to monitor their mandatory retirement savings effectively.

Correct: Under the Mandatory Provident Fund Schemes Ordinance (MPFSO), a “material decision” is broadly defined to include various critical choices made by scheme members or employers. These include the decision of whether or when to participate in a scheme (Statement II), the specific amount of contributions or investments into constituent funds, including voluntary contributions (Statement III), the transfer of accrued benefits between different MPF schemes or constituent funds (Statement I), and the transfer of benefits from an occupational retirement scheme (ORSO) to an MPF scheme (Statement IV). Since all these actions involve the movement or commitment of retirement funds, they are all classified as material decisions.

**Incorrect:** Options that suggest only a subset of these statements are correct fail to recognize the comprehensive nature of the statutory definition. For instance, excluding the transfer from an ORSO scheme or the timing of an employer’s participation would ignore specific provisions (vii) and (ii) of the material decision criteria set out in the MPFSO. All four statements represent core components of what constitutes a material decision in the context of regulated activities.

**Takeaway:** For an MPF intermediary, identifying what constitutes a ‘material decision’ is essential because any attempt to invite, induce, or advise a client regarding these specific matters falls under the definition of a ‘regulated activity,’ which requires proper registration and compliance with statutory conduct requirements. Therefore, all of the above statements are correct.

Correct: Under the Mandatory Provident Fund Schemes (General) Regulation and the MPFA Guidelines on Investment Managers (III.5), an investment manager of an MPF constituent fund must be a corporation incorporated in Hong Kong. This entity must be licensed by the Securities and Futures Commission (SFC) for Type 9 (asset management) regulated activity. Additionally, the manager must satisfy specific financial requirements, which include maintaining a minimum paid-up share capital and a net asset value of HK$10 million.

**Incorrect:** The requirement is not specifically for an authorized financial institution (bank) under the Banking Ordinance, as the primary regulatory oversight for investment management falls under the SFC. While independence between the trustee and the investment manager is a core principle to manage conflicts of interest, there is no requirement for the manager to be a subsidiary of the trustee; in fact, they are often separate entities. Finally, while risk management is essential, there is no specific statutory requirement for a professional indemnity insurance policy with a fixed HK$50 million limit as a prerequisite for approval as an investment manager.

**Takeaway:** To protect scheme members’ interests, MPF investment managers must be Hong Kong-incorporated, SFC-licensed for asset management, and meet a minimum capital and net asset threshold of HK$10 million.

Correct: Statements I, III, and IV are correct. According to the Employee Choice Arrangement (ECA), employees are permitted to transfer the accrued benefits derived from their own mandatory contributions within their current contribution account to an MPF scheme of their choice once every calendar year. These transfers must be executed on a lump sum basis. Furthermore, a contribution account is the standard account type used to receive both employer and employee mandatory contributions during the term of current employment.

**Incorrect:** Statement II is incorrect because the ECA does not extend to the employer’s portion of mandatory contributions. Accrued benefits resulting from the employer’s mandatory contributions must remain in the contribution account of the scheme selected by the employer as long as the employee remains in that specific employment.

**Takeaway:** The Employee Choice Arrangement (ECA) enhances the portability of MPF benefits by allowing employees to move their own mandatory contribution portion once a year, while the employer’s mandatory contribution portion remains in the original scheme until the employment relationship ends. Therefore, statements I, III and IV are correct.

Correct: According to MPF regulations, if a cheque for accrued benefits is not presented within its six-month validity period (the Specified Period), the trustee must attempt to locate the claimant. The benefits are only classified as ‘unclaimed benefits’ if the trustee is unable to locate the claimant during the six-month period immediately following the expiry of that Specified Period. This creates a total timeline of 12 months from the date of the cheque’s issuance before the status changes, provided the search efforts are unsuccessful.

**Incorrect:** Accrued benefits do not automatically become unclaimed the moment a cheque expires; there is a mandatory follow-up period. Receiving a returned cheque before the six-month validity expires actually triggers a requirement for immediate follow-up action rather than a waiting period for classification. Furthermore, a single inquiry to an employer is insufficient, as the trustee is required to make multiple attempts via different contact methods and send notices to last known addresses before giving up.

**Takeaway:** The classification of ‘unclaimed benefits’ due to an unpresented cheque requires the expiry of the cheque’s 6-month validity plus an additional 6-month period during which the trustee fails to locate the member despite following specified contact protocols.

Correct: Statement I is correct because it identifies that traditional family support is no longer a guaranteed safety net due to resource constraints and changing social structures. Statement II is correct as it accurately reflects the demographic projections cited by the Census and Statistics Department, which estimate the elderly population will reach 36% by 2064. Statement IV is correct because it describes the economic reality of an ageing population, where a relatively smaller working population must support a larger number of retirees for longer periods.

**Incorrect:** Statement III is incorrect because the MPF system is designed as part of a multi-pillar retirement protection framework. It is not intended to be the sole source of retirement income, nor was it designed to eliminate the need for other forms of support, such as government-funded social safety nets or personal voluntary savings and insurance.

**Takeaway:** The MPF system was established to address the risk of old age poverty in Hong Kong, driven by the weakening of traditional family support and the significant fiscal and social challenges posed by a rapidly ageing population. Therefore, statements I, II and IV are correct.

Correct: Statements I, III, and IV are accurate. The statutory regulatory regime for MPF intermediaries was indeed established on 1 November 2012 to strengthen the regulation of sales and marketing activities and protect scheme members. Guidelines on ORSO Interface (Part V) specifically address how Occupational Retirement Schemes interact with the MPF system, including exemption and transition rules. Furthermore, the MPFA issues Compliance Standards for MPF Approved Trustees to provide a framework for internal controls and operational integrity.

**Incorrect:** Statement II is incorrect because the Performance Presentation Standards were not developed solely by the MPFA. Instead, they were developed jointly by the Hong Kong Trustees Association (HKTA) and the Hong Kong Investment Funds Association (HKIFA) to provide a consistent basis for reporting fund performance to the public.

**Takeaway:** MPF intermediaries must distinguish between statutory requirements issued by the MPFA and industry standards developed by professional bodies like the HKTA and HKIFA, as both influence the operational and marketing landscape of the MPF system. Therefore, statements I, III and IV are correct.

Correct: The Fund Fact Sheet (FFS) acts as a periodic performance report for MPF constituent funds and must be issued at least on a half-yearly basis. When a fund is classified as a guaranteed fund with a “soft guarantee,” the promised return is contingent upon the member meeting specific qualifying conditions, such as a minimum period of investment or reaching a certain age. These conditions, along with the guarantee mechanism, must be clearly disclosed in the fund’s descriptive and marketing materials to ensure members understand the requirements for the guarantee to take effect.

**Incorrect:** It is inaccurate to state that Fund Fact Sheets are required to be issued on a quarterly basis, as the statutory requirement is twice a year (half-yearly). Additionally, a hard guarantee is characterized by the lack of any qualifying conditions, meaning the member receives the guarantee regardless of their specific circumstances, which is the opposite of a “career average” or conditional requirement. Furthermore, index-tracking funds are not exempt from transparency requirements; they must still disclose their fund expense ratio, portfolio allocation, and risk indicators in the FFS just like any other constituent fund.

**Takeaway:** MPF members should refer to the half-yearly Fund Fact Sheet to monitor fund performance and expenses, and they must carefully distinguish between hard guarantees (unconditional) and soft guarantees (conditional) to ensure they satisfy any requirements necessary to benefit from the capital or return protection.

Correct: Statements I and IV describe individuals who fall under the definition of casual employees within the designated industries of catering and construction. Statement I involves a worker in a licensed food factory (part of the catering industry), and Statement IV involves a plumber working for a registered specialist contractor (part of the construction industry). For these two industries, casual employees are covered by the MPF System regardless of whether they are employed for less than 60 days, provided they are within the age range of 18 to 64.

**Incorrect:** Statement II is incorrect because the individual has reached the age of 70; the MPF Ordinance exempts all employees and self-employed persons who have reached the age of 65. Statement III is incorrect because self-employed licensed hawkers are specifically categorized as exempt persons under the MPF System, meaning they are not required to join a scheme.

**Takeaway:** While most employees must meet a 60-day employment threshold, casual employees in the catering and construction industries are covered from their first day of employment, though general exemptions such as age limits (under 18 or 65 and over) and specific roles like licensed hawkers still apply. Therefore, statements I and IV are correct.

Correct: According to the Mandatory Provident Fund Schemes Ordinance, an MPF Conservative Fund has a unique fee structure where administrative expenses, including trustee, custodian, and investment management fees, cannot be deducted in any month unless the fund’s investment return for that specific month exceeds the prescribed savings rate declared by the MPFA. This mechanism is designed to protect members’ returns in low-interest-rate environments.

**Incorrect:** The other options are incorrect because MPF Conservative Funds are strictly prohibited from imposing initial fees, redemption charges, or bid-offer spreads. Furthermore, the deduction of administrative fees is not guaranteed or fixed; it is strictly contingent upon the fund’s performance relative to the prescribed savings rate. There is no provision allowing for a fixed fee deduction regardless of performance, nor is there any allowance for bid-offer spreads to cover trading costs.

**Takeaway:** The MPF Conservative Fund is a low-risk investment option with specific statutory safeguards, most notably the restriction that administrative fees can only be charged if the fund outperforms the MPFA’s prescribed savings rate for that month.

Correct: Statements I, III, and IV are accurate descriptions of the MPF regulatory framework. The Mandatory Provident Fund Schemes (Fees) Regulation explicitly covers fees for the registration of schemes and the annual registration of intermediaries. The Mandatory Provident Fund Schemes (General) Regulation provides the operational details for the investment of funds and the establishment of the compensation fund. Furthermore, the MPFA issues Guidelines (such as Part II on Reporting and Part III on Investment) to supplement the primary and subsidiary legislation.

**Incorrect:** Statement II is incorrect because the Mandatory Provident Fund Schemes (Exemption) Regulation is specifically designed to handle requirements regarding the exemption of ORSO (Occupational Retirement Schemes Ordinance) schemes from MPF requirements. It does not govern personal tax exemptions for individual contributors, which is a matter typically handled under the Inland Revenue Ordinance.

**Takeaway:** Practitioners must distinguish between the different MPF Regulations: the General Regulation handles operations and investments, the Exemption Regulation focuses on ORSO-related exemptions, and the Fees Regulation dictates the costs associated with applications and registrations. Therefore, statements I, III and IV are correct.

Correct: Statements I, II, and III accurately reflect the administrative procedures and employee protections under the Mandatory Provident Fund (MPF) system. Employers are legally required to notify the trustee of an employee’s departure by the 10th day of the month following the cessation of employment. To protect employees, the law allows them to notify the trustee directly if the employer fails to do so. Additionally, the “deemed election” mechanism ensures that if an employee does not provide instructions within three months of the trustee receiving the termination notice, their accrued benefits are automatically preserved in a personal account within the same scheme.

**Incorrect:** Statement IV is incorrect because the Non-Compliant Employer and Officer Records (NCEOR) is specifically designed to be a public-facing transparency tool. It was established by the MPFA to enhance the deterrent effect on non-compliant parties and to allow members of the public to search for information regarding criminal convictions and civil judgments related to MPF violations.

**Takeaway:** The MPF framework ensures the continuity of retirement savings through strict employer notification timelines and default “deemed election” provisions, while using public disclosure tools like the NCEOR to promote regulatory compliance. Therefore, statements I, II and III are correct.

Correct: When a client insists on selecting a constituent fund with a risk level higher than their assessed risk profile, the registered intermediary is required to perform specific disclosure and documentation duties. This includes explaining the risk mismatch and the features of the fund, confirming that the choice is the client’s own decision, and documenting the client’s reasons for the selection. The intermediary must then obtain the client’s signature on this documentation to acknowledge the mismatch and the explanations provided.

**Incorrect:** It is incorrect to suggest that an intermediary must refuse the transaction; the MPF regulatory framework allows clients to make their own investment decisions even if they deviate from the suitability assessment, provided they are fully informed of the risks. Simply relying on the initial suitability assessment is insufficient because a specific mismatch requires additional disclosure and a signed acknowledgement. Furthermore, there is no regulatory requirement to seek prior approval from or report individual investment overrides to the MPFA.

**Takeaway:** In the event of a risk mismatch where a client chooses a higher-risk fund, the intermediary must prioritize transparency by documenting the advice given and the client’s rationale, ensuring a signed audit trail is maintained for a minimum of seven years.

Correct: Statements I, II, and IV are mandatory procedures under the MPFA Guidelines when a risk mismatch occurs. The intermediary must provide a clear explanation of the fund’s risks to illustrate why it may be unsuitable, document the client’s rationale for the decision, and ensure an audit trail is created through audio recording or post-sale follow-up.

**Incorrect:** Statement III is incorrect because if a client refuses to provide the information necessary for a suitability assessment, the intermediary is prohibited from inviting, inducing, or providing regulated advice regarding any particular constituent fund, even if the fund is considered low-risk.

**Takeaway:** Registered intermediaries must strictly follow risk-matching protocols, which include warning the client of mismatches and maintaining robust documentation and audit trails to demonstrate compliance with conduct requirements. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: Statements I, III, and IV are correct. Under the Employee Choice Arrangement (ECA), employees are permitted to transfer the accrued benefits derived from their own mandatory contributions made during their current employment to an MPF scheme of their own choosing. These transfers must be made on a lump sum basis and can be exercised once every calendar year.

**Incorrect:** Statement II is incorrect because the ECA does not extend to the employer’s portion of mandatory contributions in a contribution account related to current employment. Those specific benefits must remain in the scheme selected by the employer until the employee leaves that employment.

**Takeaway:** The ECA enhances the portability of MPF benefits by allowing employees to manage their own mandatory contribution portion from current employment, though it maintains the employer’s right to choose the scheme for the employer’s contribution portion. Therefore, statements I, III and IV are correct.

Correct: According to the Mandatory Provident Fund Schemes Ordinance (MPFSO) and the Guidelines on Conduct Requirements for Registered Intermediaries, a Responsible Officer (RO) is specifically charged with ensuring that the principal intermediary (PI) has established and maintains proper controls and procedures. These systems must be designed to secure compliance by both the PI and its subsidiary intermediaries (SIs) with the conduct requirements set out in Part IVA of the MPFSO. Additionally, the RO must ensure the PI has sufficient resources and effective procedures to perform its MPF regulated activities properly.

**Incorrect:** Statement III is incorrect because while an RO oversees the compliance framework, the MPF legislation and Conduct Guidelines do not mandate that the RO personally approve every individual marketing brochure as a statutory duty. Such tasks are typically delegated to compliance or marketing departments under the RO’s supervision. The focus of the RO’s responsibility is on the systemic adequacy of controls rather than the manual approval of every single piece of collateral.

**Takeaway:** The primary regulatory expectation for an MPF Responsible Officer is to act as the architect and overseer of the firm’s compliance infrastructure, ensuring that both the entity and its individual representatives adhere to statutory conduct standards. Therefore, statements I, II and IV are correct.

Correct: Chauffeurs are required to be covered by the MPF system because their services are not rendered within the residential premises of the employer. Similarly, private tutors are generally classified as self-employed persons (SEPs) and are required to participate in the MPF system, regardless of whether the lessons are conducted at the student’s home or a separate studio. Therefore, both the chauffeur and the private tutor in this scenario are subject to MPF requirements.

**Incorrect:** Domestic servants, such as cleaners or baby sitters, are exempt from MPF coverage if their services are rendered wholly or substantially in the residential premises of the employer. Furthermore, overseas employees entering Hong Kong under an employment visa with permission to stay for a period not exceeding 13 months are also exempt from the MPF requirements. Thus, the domestic helper and the consultant on a 10-month visa are not covered.

**Takeaway:** MPF coverage depends on the nature and location of the work for domestic staff, while for expatriates, the duration of the initial visa determines their exemption status. Self-employed persons like tutors are generally covered if they are within the statutory age range.

Correct: Statements I, II, and IV accurately reflect the statutory requirements under the Mandatory Provident Fund Schemes Ordinance (MPFSO) for registration as a subsidiary intermediary. An applicant must hold the status of a Type B regulatee (such as a licensed representative or relevant individual) and cannot be a Type A regulatee (an authorized entity). The law also requires that the application be accompanied by a request for attachment to a principal intermediary and that the applicant has not faced disciplinary revocation of their Type B qualification within the preceding year.

**Incorrect:** Statement III is incorrect because the exemption from the qualifying examination requirement for those previously registered within the last three years specifically excludes individuals whose prior registration was revoked due to non-compliance with continuing professional development (CPD) or continuing training requirements. Such individuals would generally need to retake the examination if their registration has lapsed or been revoked.

**Takeaway:** To be registered as a subsidiary intermediary, an individual must satisfy specific ‘fit and proper’ criteria, including maintaining Type B regulatee status, securing a formal attachment to a principal intermediary, and meeting examination requirements unless a specific non-CPD related exemption applies. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and III are correct. According to the MPF Guidelines, principal intermediaries are required to maintain all records relating to the conduct of regulated activities for a minimum of seven years. Furthermore, any identified failure to comply with the Mandatory Provident Fund Schemes Ordinance (MPFSO) or its subsidiary legislation must be reported to the frontline regulator within 14 working days. For complaints of a serious or criminal nature, such as the unauthorized transfer of accrued benefits or forgery, the intermediary must notify the regulators immediately to ensure prompt regulatory intervention.

**Incorrect:** Statement IV is incorrect because the Guidelines explicitly state that a principal intermediary should have arrangements in place to prevent a subsidiary intermediary from receiving cash payments or uncrossed cheques. This control is vital to minimize the risk of fraud, defalcation, or misappropriation of client funds, ensuring that all contributions are paid directly to the approved trustee or the registered scheme.

**Takeaway:** Principal intermediaries must establish robust internal controls that include a seven-year record retention policy, specific reporting timelines for non-compliance (14 working days) and serious complaints (immediately), and a strict prohibition on subsidiary intermediaries handling cash or uncrossed cheques. I, II & III only. Therefore, statements I, II and III are correct.

Correct: Under the Mandatory Provident Fund (MPF) System, the construction and catering industries are designated industries where “casual employees” are covered regardless of their employment duration. A casual employee is defined as someone employed on a day-to-day basis or for a fixed period of less than 60 days in these specific sectors. Since interior fitting-out works are explicitly listed as one of the eight major categories of the construction industry, a worker engaged on a day-to-day basis for 15 days must be enrolled in an MPF scheme from the first day of employment.

**Incorrect:** The general rule that an employee must be employed for at least 60 days to be covered by the MPF System does not apply to casual employees in the construction and catering industries. Interior fitting-out is not an excluded category; it is a core part of the construction industry definition for MPF purposes. Furthermore, there is no regulatory provision that sets a 30-day minimum threshold for the coverage of casual employees in these designated sectors.

**Takeaway:** For the construction and catering industries, the 60-day employment rule is waived for casual employees, ensuring they are covered by the MPF System even for very short-term or day-to-day engagements.

Correct: Statements I, II, and IV accurately reflect the regulatory framework established by the MPFA. The Mandatory Provident Fund Schemes (Fees) Regulation (Statement I) indeed prescribes fees for various administrative actions, including the registration of constituent funds and the approval of responsible officers for intermediaries. The Mandatory Provident Fund Schemes (General) Regulation (Statement II) is the primary regulation for operational details, covering the compensation fund and the processes for withdrawing accrued benefits. Furthermore, the MPFA Guidelines (Statement IV) are divided into parts, where Part III specifically provides detailed guidance on investment matters to supplement the primary legislation.

**Incorrect:** Statement III is incorrect because the Mandatory Provident Fund Schemes (Exemption) Regulation is specifically designed to handle matters related to Occupational Retirement Schemes Ordinance (ORSO) schemes, such as applications for exemption from MPF requirements and the conditions of such exemptions. The approval and ongoing control of MPF trustees are governed by the main MPF Ordinance and the General Regulation, rather than the Exemption Regulation.

**Takeaway:** Practitioners must distinguish between the different sets of regulations: the General Regulation handles scheme operations, the Exemption Regulation focuses on ORSO-related exemptions, and the Fees Regulation dictates the costs of statutory applications and registrations. Therefore, statements I, II and IV are correct.

Correct: For regular employees (those who are not casual employees), a “contribution holiday” applies specifically to the employee’s portion of mandatory contributions. This holiday encompasses the first 30 days of employment and any subsequent incomplete wage period. However, this exemption does not apply to the employer; the employer is legally required to make mandatory contributions for the employee starting from the very first day of employment.

**Incorrect:** It is incorrect to state that both the employer and the employee enjoy a contribution holiday, as the law requires the employer to contribute from day one. Similarly, the claim that an employee must contribute from the first day is only true for casual employees, not regular employees. The suggestion that a holiday applies only to the employer or requires a three-month waiting period contradicts the Mandatory Provident Fund Schemes Ordinance.

**Takeaway:** In the MPF system, the “contribution holiday” is a benefit for regular employees regarding their own 5% contribution, but employers must fulfill their 5% contribution obligation from the employee’s commencement date.