Mandatory Provident Fund Quiz 09

Correct: Money Market Funds (often referred to as Cash Funds) are designed for capital preservation, primarily investing in short-term interest-bearing securities such as treasury bills and certificates of deposit to earn interest from large deposits. In the context of insurance-based MPF products, a Class G insurance policy is characterized by providing guarantees on capital or returns. Regulatory requirements dictate that such a policy must be backed by a guarantor, which can be the insurance company itself or an external financial institution authorized by the Monetary Authority (MA). Therefore, the correct combination is I and II only.

**Incorrect:** Statement III is inaccurate because the primary objective of a Balanced Fund (or Mixed Asset Fund) is to achieve modest growth in both income and capital to outpace inflation, whereas maximizing interest income is the primary goal of a Bond Fund. Statement IV is incorrect because Equity Funds typically exhibit higher volatility and offer higher expected rates of return compared to Bond Funds, which are generally more stable and focused on fixed income.

**Takeaway:** MPF investment funds are classified based on their specific objectives and risk-return profiles; while Money Market Funds focus on liquidity and capital preservation, Class G insurance policies provide structured guarantees that must be supported by authorized guarantors.

Correct: For employees who join an MPF Exempted ORSO Registered Scheme after the MPF system was implemented (often referred to as ‘new members’), the law stipulates that a portion of their benefits must be preserved according to MPF-style standards. This portion is known as the Minimum MPF Benefit (MMB). When such a member leaves their employment, the MMB must be transferred to an MPF scheme or another MPF Exempted ORSO scheme and cannot be withdrawn as a cash lump sum unless the member meets the specific statutory grounds for early withdrawal applicable to MPF products, such as reaching the age of 65.

**Incorrect:** It is inaccurate to claim that the entire balance of the ORSO scheme must be preserved, as the portion of the benefit that exceeds the Minimum MPF Benefit is governed by the specific trust deed or rules of the ORSO scheme, which may allow for different vesting scales or withdrawal terms. Additionally, the suggestion that an exemption from the MPF system removes all preservation requirements is false; the exemption is conditional upon the scheme maintaining the MMB for its members. Finally, length of service (such as five or ten years) does not override the statutory requirement to preserve the MMB until retirement age.

**Takeaway:** While MPF Exempted ORSO Registered Schemes offer flexibility, ‘new members’ are subject to the Minimum MPF Benefit (MMB) rule, which ensures that a baseline of retirement savings is preserved and handled with the same portability restrictions as standard MPF contributions.

Correct: Employees who are employed in or from Hong Kong by companies conducting business in Hong Kong are generally required to be enrolled in the MPF system, regardless of their place of residence. This includes individuals who live in mainland China (such as Shenzhen) and commute daily to Hong Kong for work, as the employment relationship is centered in Hong Kong and they do not fall under any specific statutory exemption.

**Incorrect:** Expatriates entering Hong Kong on an employment visa are exempt from MPF requirements if their permitted stay does not exceed 13 months or if they are members of an overseas retirement scheme. Domestic employees, such as helpers or cooks, who provide services within the residential premises of their employer are also specifically excluded from the MPF system. Furthermore, for general employees not in the catering or construction industries, the mandatory enrollment requirement only applies if the employment period is 60 days or more; therefore, a 50-day internship does not meet the minimum duration threshold.

**Takeaway:** MPF coverage is primarily determined by the location of the employment and the duration of the contract, with specific exemptions granted for domestic services performed in a home and short-term stays by overseas professionals.

Correct: Statements I, II, and IV are accurate reflections of the regulatory framework in Hong Kong. The Securities and Futures Commission (SFC) is tasked with authorizing MPF schemes and constituent funds by vetting their disclosure documents. The Insurance Authority (IA) monitors the solvency of insurance companies to ensure they can meet their MPF-related liabilities. The Monetary Authority (MA) oversees authorized institutions (banks) that serve as custodians or provide financial support to trustees, ensuring their financial soundness.

**Incorrect:** Statement III is incorrect because the MPFA does not directly supervise or investigate all registered MPF intermediaries. Under the current regulatory regime, this responsibility is delegated to the “Frontline Regulators” (the SFC, IA, or MA) based on the intermediary’s core business (securities, insurance, or banking respectively).

**Takeaway:** The regulation of the MPF system is a collaborative effort where the MPFA works alongside the SFC, IA, and MA, with each authority focusing on its specific area of expertise regarding products, service providers, and intermediaries. Therefore, statements I, II and IV are correct.

Correct: According to Section 34W of the Mandatory Provident Fund Schemes Ordinance (MPFSO), for an individual to be approved as a responsible officer of a principal intermediary, several conditions must be met. The individual must already be a subsidiary intermediary attached to that principal intermediary and must possess sufficient authority, resources, and support within the organization to fulfill their duties. Additionally, the individual must not have had a previous approval as a responsible officer revoked by the MPFA within the one year immediately preceding the application, nor be currently disqualified by the MPFA from being an officer.

**Incorrect:** The requirement is not based on a specific three-year service history as a subsidiary intermediary, nor is a Type A regulatee status required for all individuals (Type A refers to the institutions themselves under the Banking Ordinance). While regulatory history is important, the law does not mandate a specific written recommendation from the SFC as a prerequisite for MPFA approval. Furthermore, while passing the MPF examination is necessary to become a subsidiary intermediary, the specific one-year look-back period for RO approval refers to the revocation of prior RO status, not the timing of the examination.

**Takeaway:** Approval for a responsible officer requires the individual to be an attached subsidiary intermediary with sufficient internal authority and a clean regulatory record specifically regarding prior responsible officer revocations within the last 12 months.

Correct: Statements I, II, and III are consistent with the conduct requirements set out in the MPFA Guidelines VI.2. Registered intermediaries are required to perform a ‘Know Your Client’ (KYC) process to understand a client’s investment objectives, risk tolerance, and financial situation. If a client chooses not to provide this information, the intermediary must explain that such a lack of information will hinder their ability to ensure the suitability of any recommendation. Furthermore, the guidelines explicitly require intermediaries to exercise extra care when dealing with clients who have special needs, such as the elderly or those with lower education levels, to ensure they fully understand the information provided.

**Incorrect:** Statement IV is incorrect because the regulatory obligations regarding suitability and conduct requirements under the Mandatory Provident Fund Schemes Ordinance cannot be set aside through a waiver. Intermediaries must comply with these statutory requirements to act in the best interests of their clients, and allowing a client to waive the suitability assessment would be a breach of the conduct standards expected by the MPFA.

**Takeaway:** The suitability assessment process is a mandatory regulatory requirement that involves gathering specific client data and providing necessary warnings if information is withheld, ensuring that all recommendations are appropriate for the client’s individual circumstances. Therefore, statements I, II and III are correct.

Correct: According to the Mandatory Provident Fund Schemes Ordinance, a subsidiary intermediary is required to notify the MPFA in writing of any change in their address or contact details within 7 working days of the occurrence. Failure to comply with this reporting requirement without a reasonable excuse constitutes an offence and may result in a fine of $50,000.

**Incorrect:** Timeframes such as 14 days or 30 days are incorrect as the statutory requirement is strictly 7 working days for reporting changes in contact details. Automatic suspension is not the primary penalty for failing to report an address change; instead, it is a statutory fine. While Principal Intermediaries have their own reporting obligations, the responsibility for reporting a change in a subsidiary intermediary’s personal contact information lies with the subsidiary intermediary themselves. Furthermore, the 10% surcharge is a penalty specifically associated with the late payment of annual fees, not for failing to report administrative changes.

**Takeaway:** Both principal and subsidiary intermediaries must adhere to a strict 7-working-day notification window for reporting changes in contact details or regulatory status to the MPFA to avoid potential fines of $50,000.

Correct: The primary driver for a mandatory system is the significant demographic shift in Hong Kong, where the proportion of the population aged 65 and over is projected to rise from 12% in 2001 to 36% by 2064. This trend implies that a shrinking working population will be responsible for supporting a growing number of retirees for longer periods, rendering traditional family-based support systems increasingly inadequate and highlighting the need for structured, individual retirement savings to prevent old-age poverty.

**Incorrect:** It is inaccurate to suggest that the MPF was designed to completely eliminate the government’s role in social welfare; rather, it serves as one of multiple pillars of retirement protection. Furthermore, the premise that most individuals already possess the necessary awareness and financial ability to save independently is contradicted by the rationale for the system’s implementation. Finally, the demographic challenges are not a future phenomenon limited to the mid-21st century but are ongoing trends that have been observed and projected since the early 2000s.

**Takeaway:** Mandatory retirement systems are essential in societies facing an ageing population because they mitigate the risk of old-age poverty that arises when traditional family structures and voluntary savings cannot keep pace with increasing life expectancy and dependency ratios.

Correct: Statements I, II, and III are correct. According to the Mandatory Provident Fund Schemes Ordinance (MPFSO), the MPFA must provide a regulated person with a written notice of its preliminary view and the reasons for a proposed disciplinary order before a final decision is made. The regulated person is entitled to make representations, either orally or in writing, regarding that preliminary view. Furthermore, any appeal against a final disciplinary decision must be submitted to the Mandatory Provident Fund Schemes Appeal Board within two months of the date the MPFA gives written notice of its decision.

**Incorrect:** Statement IV is incorrect because the MPFA is required to include a record of disciplinary orders in the Register of Intermediaries for the last five years, not ten years. Additionally, while the MPFA is empowered to disclose disciplinary decisions to the public (typically via press releases), this power specifically excludes private reprimands.

**Takeaway:** The MPF disciplinary process ensures procedural fairness by requiring preliminary notices and allowing for representations, while providing a clear two-month window for independent appeals to the Appeal Board and maintaining a five-year public record of sanctions in the Register of Intermediaries. I, II & III only. Therefore, statements I, II and III are correct.

Correct: Statement I is accurate because the catering industry (which includes bakeries) classifies individuals employed on a day-to-day basis or for a fixed period of less than 60 days as casual employees. Statement III is correct as the MPF System defines a self-employed person as someone whose income derives from the production of goods or services in Hong Kong, specifically including partners in a partnership. Statement IV is correct because persons from overseas who enter Hong Kong for employment for a period of 13 months or less are specifically listed as exempt persons.

**Incorrect:** Statement II is incorrect because self-employed licensed hawkers are explicitly categorized as exempt persons under the Mandatory Provident Fund Schemes Ordinance. Therefore, they are not required to join an MPF scheme, regardless of their income or trade location.

**Takeaway:** Understanding MPF coverage requires distinguishing between industry-specific casual employment rules, the definition of self-employment for partners and sole proprietors, and the specific statutory exemptions granted to groups such as licensed hawkers and short-term overseas employees. Therefore, statements I, III and IV are correct.

Correct: According to the regulatory guidelines for Mandatory Provident Fund (MPF) schemes, employers and self-employed persons are required to remit mandatory contributions directly to the approved trustee. This can be done through the trustee’s designated bank branches or customer service counters. Direct payment ensures that the funds are securely received by the scheme and minimizes the risk of administrative delays or loss, which helps the employer avoid late payment surcharges and potential legal penalties.

**Incorrect:** Making payments through MPF intermediaries, whether in the form of cash or cheques, is a practice that should be strictly avoided because intermediaries are not authorized to collect these funds. Handing cash to an intermediary or issuing a cheque in their name significantly increases the risk of misappropriation. Furthermore, the MPFA is the regulatory body and does not act as a collection agent for scheme contributions; therefore, attempting to pay through government tax counters is incorrect.

**Takeaway:** To ensure compliance and fund security, MPF contributions must always be paid directly to the trustee or their official banking channels rather than through intermediaries or in cash.

Correct: Statements I, II, and IV accurately reflect the statutory conduct requirements under the Mandatory Provident Fund Schemes Ordinance (MPFSO). Specifically, Section 34ZL requires intermediaries to exercise the care, skill, and diligence of a prudent person and to provide sufficient disclosure so clients can make informed material decisions. Furthermore, Section 34ZM (and 34ZL(3)) mandates that a principal intermediary must establish and maintain internal controls and procedures to ensure their subsidiary intermediaries comply with these conduct standards.

**Incorrect:** Statement III is incorrect because the statutory requirement is for the intermediary to act in the best interests of the client and to use best endeavors to avoid conflicts of interest. If a conflict is unavoidable, it must be disclosed to the client. There is no provision allowing an intermediary to prioritize the firm’s interests over the client’s interests, regardless of documentation.

**Takeaway:** MPF intermediaries are bound by a fiduciary-like duty to act with integrity and in the client’s best interest, supported by a regulatory framework that requires principal intermediaries to maintain strict oversight and internal compliance systems. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and III are accurate descriptions of the Mandatory Provident Fund (MPF) system. It is employment-based, meaning it covers the majority of the working population through their employment or self-employment. It is a fully-funded system where the benefits paid to a member are derived from the contributions made by the employer and/or the employee, plus any investment returns. Furthermore, it is privately-managed, as the schemes are operated by private-sector trustees approved by the Mandatory Provident Fund Schemes Authority (MPFA).

**Incorrect:** Statement IV is incorrect because the MPF system is a defined contribution (DC) system, not a defined benefit (DB) system. In a defined contribution system, the final benefit is determined by the total amount of contributions and the investment performance of the chosen funds. In contrast, a defined benefit system guarantees a specific payout based on a formula (usually involving years of service and salary), which is not how the MPF functions.

**Takeaway:** The core pillars of the MPF system design are that it is employment-based, fully-funded, and privately-managed under a defined contribution framework. Therefore, statements I, II and III are correct.

Correct: All four statements accurately describe the regulatory framework of the MPF system. Statement I is correct because the Fees Regulation specifically prescribes the costs associated with the annual renewal of scheme registrations. Statement II is correct as the General Regulation encompasses the operational rules for portability and the withdrawal of benefits. Statement III is correct because the Exemption Regulation is the primary subsidiary legislation governing how ORSO schemes can be exempted from MPF requirements. Statement IV is correct as the MPFA issues Compliance Standards specifically to assist trustees in building a robust framework for statutory compliance.

**Incorrect:** There are no incorrect statements in this selection. A common misunderstanding in this area is confusing the role of the General Regulation with the Fees Regulation, or assuming that the Exemption Regulation applies to individual member exemptions rather than the interface between ORSO and MPF schemes.

**Takeaway:** The MPF regulatory framework is composed of the primary Ordinance supported by specific Regulations (General, Exemption, Fees) and supplementary Codes and Guidelines, each serving distinct administrative and operational functions. Therefore, all of the above statements are correct.

Correct: Statement I is accurate as the Fund Expense Ratio (FER) is designed to provide a comprehensive view of costs, requiring the inclusion of fees and charges incurred at the underlying Approved Pooled Investment Fund (APIF) level. Statement III correctly identifies that the Annual Benefit Statement (ABS), which provides a historical snapshot of a member’s account and transactions, must be issued within three months of the scheme’s financial year-end. Statement IV accurately reflects the MPFA’s supervisory mandate to monitor investment breaches and ensure that trustees implement effective measures to prevent recurrence.

**Incorrect:** Statement II is incorrect because, according to the Disclosure Code, constituent funds or APIFs with less than two years of history are not required to show an FER. Since the fund in the scenario only has 18 months of track record, the disclosure is not mandatory.

**Takeaway:** MPF intermediaries must distinguish between different disclosure timelines and requirements; specifically, the two-year track record rule for FER disclosure and the three-month issuance deadline for the Annual Benefit Statement. Therefore, statements I, III and IV are correct.

Correct: Under the Mandatory Provident Fund Schemes Ordinance, the MPFA is granted comprehensive supervisory and enforcement powers to ensure the integrity of the MPF system. These include the ability to direct a trustee to take remedial action, launch formal investigations, and levy financial penalties based on the seriousness of the non-compliance. Furthermore, for severe or persistent breaches, the MPFA has the authority to suspend or terminate a trustee’s administration of a scheme and revoke their status as an approved trustee. (i), (ii), (iii), and (iv) Incorrect: Combinations that omit any of these powers are incorrect because the MPFA’s authority is not restricted to just one type of intervention. It can move from administrative corrections (remedial action) to punitive measures (penalties) and ultimately to structural changes (revocation or termination) depending on the investigation’s findings. For instance, excluding the power to revoke approval or the power to order remedial action fails to capture the full scope of the MPFA’s regulatory toolkit.

**Takeaway:** The MPFA utilizes a graduated enforcement approach, ranging from corrective orders and financial penalties to the total revocation of a trustee’s approval, ensuring the protection of scheme members. (i), (ii), (iii), and (iv).

Correct: Statements I, II, and IV accurately describe the statutory requirements for an individual seeking registration as a subsidiary intermediary under the Mandatory Provident Fund Schemes Ordinance (MPFSO). An applicant must hold the status of a Type B regulatee (such as a licensed representative or a relevant individual) and must not be a Type A regulatee (which refers to the corporate entities). Additionally, the law requires a one-year period to have elapsed since any previous revocation of MPF registration by the MPFA, and the individual’s application must be formally linked to a principal intermediary through an attachment application.

**Incorrect:** Statement III is incorrect because the MPFSO explicitly disqualifies any applicant whose underlying qualification as a Type B regulatee is currently suspended by their respective industry regulator (the IA, MA, or SFC). Eligibility is contingent upon the applicant maintaining an active and unsuspended status with their primary regulator.

**Takeaway:** To qualify as a subsidiary intermediary, an applicant must be a Type B regulatee in good standing, meaning they must not be under suspension by their industry regulator and must not have had an MPF registration revoked within the preceding year. The correct combination is I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and IV are correct. According to the MPF legislation, the Statement of Investment Policy (SIP) must be highly transparent and include specific details such as the policy on financial futures and options (Statement I) and the expected return of the overall portfolio (Statement IV). Additionally, if an Approved Pooled Investment Fund (APIF) is structured as an insurance policy, it must be a Class G policy, which is a long-term insurance policy providing retirement benefits with a guarantee (Statement II).

**Incorrect:** Statement III is incorrect because the authorization of a pooled investment fund as a collective investment scheme under section 104 of the Securities and Futures Ordinance is the statutory responsibility of the Securities and Futures Commission (SFC), not the MPFA. The MPFA is responsible for the approval of the funds for MPF purposes under the General Regulation, but the SFC handles the SFO authorization.

**Takeaway:** To ensure transparency for scheme members, every constituent fund and APIF must maintain a Statement of Investment Policy covering objectives, asset mix, risk, and return expectations. Furthermore, APIFs must be governed by Hong Kong law and receive both SFC authorization and MPFA approval. Therefore, statements I, II and IV are correct.

Correct: According to the Mandatory Provident Fund Schemes Ordinance (MPFSO), if a person provides false or misleading records, documents, or answers with the intent to defraud during an investigation or inspection, they are liable to the most severe criminal penalties. On conviction on indictment, the maximum penalty is a fine of $1,000,000 and imprisonment for 7 years. This high threshold is designed to deter deliberate deception of the regulator.

**Incorrect:** A fine of $1,000,000 and imprisonment for 2 years is the maximum penalty on indictment for providing false or misleading information knowingly or recklessly, but where the specific ‘intent to defraud’ is not established. A fine of $100,000 and imprisonment for 6 months is the maximum penalty for the fraudulent offense if the case is prosecuted on summary conviction rather than indictment. A fine of $10,000,000 refers to the maximum pecuniary penalty the MPFA can impose as a disciplinary order for non-compliance, which is a civil/administrative penalty rather than a criminal sentence for fraud.

**Takeaway:** The MPFSO imposes significantly harsher criminal penalties (up to 7 years imprisonment) when non-compliance with investigation requirements involves a proven intent to defraud, compared to cases involving simple failure to comply or reckless provision of false information.

Correct: For a self-employed person (SEP) who does not need to submit a remittance statement, the mandatory contribution is legally considered paid on the date on which the trustee issues the direct debit instruction. This specific rule ensures that the SEP is not penalized for the time it takes for banking systems to process the instruction, provided sufficient funds are available in the account.

**Incorrect:** The date the funds are actually debited from the individual’s bank account or the date the scheme’s bank account is credited are criteria applicable to other payment methods, such as direct credit. The date the trustee receives a remittance statement is the trigger for employers using direct debit, but it does not apply to SEPs who are exempt from submitting such statements.

**Takeaway:** The legal payment date for MPF contributions depends on the payment channel; for SEPs utilizing direct debit, the date the trustee initiates the instruction is the critical compliance milestone.