Mandatory Provident Fund Quiz 12

Correct: Statements I, II, and IV are accurate. The Performance Presentation Standards were indeed developed jointly by the Hong Kong Trustees Association (HKTA) and the Hong Kong Investment Funds Association (HKIFA) to ensure consistency in how investment results are reported. The Guidelines on ORSO Interface provide the necessary framework for schemes exempted under the Occupational Retirement Schemes Ordinance. Furthermore, the Guidelines on Intermediaries support the statutory regime introduced in 2012 to regulate sales and marketing activities and protect scheme members.

**Incorrect:** Statement III is incorrect because the Compliance Standards for MPF Approved Trustees are issued by the Mandatory Provident Fund Schemes Authority (MPFA), not the Securities and Futures Commission (SFC). While the SFC is a frontline regulator for certain intermediaries, the specific compliance standards for approved trustees fall under the direct mandate of the MPFA.

**Takeaway:** Understanding the source and purpose of different MPF guidelines and standards is crucial for compliance. While the MPFA issues most operational and intermediary guidelines, certain performance standards are industry-developed to promote transparency and comparability across the market. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because in a “Frozen” ORSO scheme, no further contributions are made for future service, and the employer is required to enroll all employees (both existing and new) into an MPF scheme. Statement II is correct as it accurately reflects the statutory requirement under the Occupational Retirement Schemes Ordinance for an employer to notify the Registrar and all scheme members within 14 days of the commencement of a winding up.

**Incorrect:** Statement III is incorrect because an “MPF Exempted ORSO Scheme with Closed Membership” specifically prohibits new employees from joining the ORSO scheme, requiring them to join an MPF scheme instead; the option to choose is a feature of “Open Membership” schemes. Statement IV is incorrect because benefits attributable to employer contributions are generally taxable if paid out upon termination, unless the payment occurs under prescribed circumstances such as retirement, death, or incapacity.

**Takeaway:** Employers must distinguish between the different operational modes of ORSO schemes (Open, Closed, Frozen, or Top-up) and adhere to strict notification timelines and tax regulations when terminating or winding up a scheme. Therefore, statements I and II are correct.

Correct: Statements I, II, and III are accurate descriptions of MPF disclosure and fund features. The Fund Fact Sheet (FFS) is a regulatory requirement issued on a half-yearly basis (twice a year) to provide transparency on fund performance, risk, and asset allocation. A soft guarantee is conditional, meaning the member must meet specific criteria (like a vesting period or holding duration) to benefit from the guarantee. The Fund Expense Ratio (FER) is a critical component of the FFS that allows members to compare the cost efficiency of different funds.

**Incorrect:** Statement IV is incorrect because it describes a soft guarantee rather than a hard guarantee. A hard guarantee is unconditional, meaning the guarantor provides the minimum return or capital protection regardless of whether the member meets specific qualifying conditions. The “career average” condition is a classic example of a qualifying condition associated with soft guarantees.

**Takeaway:** Intermediaries must ensure members understand that while the Fund Fact Sheet provides essential periodic data for fund comparison, the specific terms of a guaranteed fund (hard vs. soft) significantly impact the member’s eligibility for protected returns. Therefore, statements I, II and III are correct.

Correct: Statements I, II, and III are accurate according to the Mandatory Provident Fund Schemes Ordinance. Statement I reflects the “once-in-a-lifetime” rule for permanent departure claims. Statement II correctly identifies one of the three mandatory statutory declarations required for a small balance claim (the others being that 12 months have passed since the last contribution and no benefits are held in other schemes). Statement III accurately states the medical criteria for terminal illness, which requires a prognosis of 12 months or less.

**Incorrect:** Statement IV is incorrect because the regulations specifically prohibit trustees from charging fees or financial penalties (excluding necessary transaction costs) for the first four instalment withdrawals made by a member in any given year. This protection is designed to facilitate flexible retirement planning for members who have reached the age of 65 or opted for early retirement at 60.

**Takeaway:** MPF early withdrawal is permitted under specific circumstances with strict evidentiary requirements: permanent departure is a one-time ground, terminal illness requires a 12-month medical prognosis, and small balance claims require a total cessation of employment intent. Furthermore, retirees are entitled to at least four fee-free instalment withdrawals annually. Therefore, statements I, II and III are correct.

Correct: Bondholders act as creditors to the issuing organization rather than owners. In the event of a company’s bankruptcy or liquidation, the legal hierarchy of claims dictates that bondholders, as debt providers, must be paid from any remaining assets before stockholders. Stockholders represent the ownership of the corporation and are considered residual claimants, meaning they only receive value after all creditor obligations, including bonds, have been fully satisfied.

**Incorrect:** It is incorrect to suggest that stockholders have priority over bondholders; equity is the most junior tier in the capital structure and carries the highest risk of total loss in liquidation. Bondholders and stockholders do not share equal standing, as debt obligations are contractual requirements that precede ownership distributions. The idea that bond claims are subordinated to equity because of fixed coupons is a misunderstanding of financial seniority; fixed income generally sits higher in the capital structure than variable-return equity.

**Takeaway:** A fundamental distinction between bonds and equities is the priority of claims; bonds represent a debt obligation with seniority in liquidation, while equities represent ownership with a residual claim on assets.

Correct: Statements II, III, and IV are accurate according to the regulatory framework. All constituent funds must be governed by Hong Kong law and denominated in Hong Kong dollars to ensure jurisdictional consistency. For master trust schemes, transparency is mandated through the monthly publication of unit prices in both English and Chinese daily newspapers. Furthermore, the SFC Code on MPF Products specifically outlines the necessary qualifications and experience required for investment managers overseeing these funds.

**Incorrect:** Statement I is incorrect because the responsibility for vetting and authorizing the disclosure of information in offering documents, advertisements, and marketing materials lies with the Securities and Futures Commission (SFC), rather than the MPFA. The MPFA’s role focuses on the registration of schemes and ensuring compliance with operational and investment standards under the MPF Ordinance.

**Takeaway:** The regulation of MPF products is a shared responsibility where the SFC focuses on disclosure, marketing, and manager licensing, while the MPFA handles scheme registration and operational oversight. All constituent funds must adhere to specific structural requirements, including local denomination and regular price disclosure. Therefore, statements II, III and IV are correct.

Correct: Under the Guidelines on Conduct Requirements for Registered Intermediaries issued by the MPFA, several core principles govern the behavior of those providing MPF-related services. These include the fundamental obligation to act honestly, fairly, and with integrity while prioritizing the client’s best interests. Furthermore, intermediaries are mandated to disclose potential conflicts of interest and provide all information necessary for a client to make an informed decision. They must also perform their duties with the expected level of care, skill, and diligence. Therefore, the requirements encompass (i), (ii), (iii), and (iv).

**Incorrect:** Options that omit any of these four pillars fail to reflect the comprehensive nature of the conduct standards. For example, focusing only on integrity and diligence would ignore the critical transparency requirements regarding conflicts of interest and information disclosure. The regulatory framework is designed so that all these elements work together to ensure scheme members are treated fairly and professionally.

**Takeaway:** Registered intermediaries must comply with a broad set of conduct standards—including integrity, transparency, and professional diligence—to ensure the protection of scheme members’ interests and the integrity of the MPF system.

Correct: Statements I, II, and IV are correct. Under the interface arrangements between ORSO and MPF systems, an employer who operates an MPF-exempted ORSO registered scheme is required to provide new eligible employees with a one-time option to choose between that ORSO scheme and an MPF scheme. For members who remain in or join the MPF-exempted ORSO scheme, the Minimum MPF Benefits (MMB) portion of their accrued benefits is subject to preservation and portability requirements similar to those in the MPF system. Furthermore, if an existing member elects to switch to an MPF scheme, their future contributions and benefits are fully governed by the Mandatory Provident Fund Schemes Ordinance.

**Incorrect:** Statement III is incorrect because there is no regulatory requirement for an employer to offer an ORSO option to an employee based on their previous employment history with other firms. If an employer chooses to close their ORSO scheme to new members, they are only required to enroll those new employees in an MPF scheme.

**Takeaway:** The regulatory framework ensures that employees are provided with a clear choice between available retirement schemes while mandating that a minimum level of benefits (MMB) is preserved for those who opt for ORSO coverage. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and III are correct. Under the interface arrangements between ORSO and MPF, employers operating an MPF-exempted ORSO registered scheme must provide new eligible employees with a one-time option to choose between the MPF scheme and the ORSO scheme. For new members (those joining after the MPF implementation), the portion of their benefits known as Minimum MPF Benefits (MMB) is subject to the same preservation and withdrawal requirements as the MPF system, ensuring a baseline of retirement protection.

**Incorrect:** Statement IV is incorrect because the legislation requires a one-time option to be offered to new employees. Whether an employee can switch between schemes later depends on the specific governing rules of the ORSO scheme and the employer’s policy; it is not a statutory right for the employee to switch at any time at their sole discretion.

**Takeaway:** New employees joining an MPF-exempted ORSO scheme are subject to the Minimum MPF Benefits (MMB) rule, which mandates that a calculated portion of their benefits must be preserved and withdrawn according to MPF standards, unlike existing members who may have different preservation treatments. I, II & III only. Therefore, statements I, II and III are correct.

Correct: Statements I, II, and III are accurate regarding the interface between ORSO and MPF systems. When an employer operates an MPF-exempted ORSO registered scheme, they must provide new eligible employees with a one-time option to choose between that scheme and an MPF scheme. If the employee selects the ORSO scheme, the portion of their benefits known as “Minimum MPF Benefits” (MMB) becomes subject to preservation and portability rules similar to those in the MPF system. These MMB are calculated based on the contributions and investment returns accumulated during the employee’s years of service while a member of the MPF-exempted ORSO scheme.

**Incorrect:** Statement IV is incorrect because the regulatory framework specifies that if a new eligible employee fails to make an election between the MPF-exempted ORSO scheme and the MPF scheme within the 30-day election period, the employer is legally required to enroll the employee in an MPF scheme. This ensures the employee is covered by a retirement protection scheme in the absence of a proactive choice.

**Takeaway:** Employers offering MPF-exempted ORSO schemes must ensure a fair election process for new staff; those opting for the ORSO route must have their Minimum MPF Benefits (MMB) protected under statutory preservation requirements to maintain parity with the MPF system’s safeguards. Therefore, statements I, II and III are correct.

Correct: Statements I, III, and IV accurately reflect the conduct requirements for MPF registered intermediaries. According to the Guidelines, any cheques received must be crossed and made payable only to the approved trustee or the registered scheme to ensure the security of client assets. Furthermore, principal intermediaries are mandated to retain records of regulated activities, including the rationale for advice and client acknowledgments, for a minimum of seven years. When discussing costs, intermediaries are expected to refer clients to standardized disclosure tools such as the fund expense ratio (FER) and the ongoing cost illustration (OCI) to facilitate informed decision-making.

**Incorrect:** Statement II is incorrect because registered intermediaries are strictly prohibited from accepting cash payments from clients under any circumstances. Even if the intention is to deposit the funds into the principal intermediary’s account, the act of receiving cash violates the conduct requirement intended to prevent the misappropriation of funds and ensure a clear audit trail through the banking system.

**Takeaway:** Registered intermediaries must observe a total ban on receiving cash, ensure all cheques are properly restricted to the trustee, and maintain detailed records of client advice and fee disclosures for a statutory period of seven years. Therefore, statements I, III and IV are correct.

Correct: The Guidelines on Conduct Requirements for Registered Intermediaries are issued by the MPFA to provide guidance on the minimum standards expected of regulated persons. They do not have the force of law and are intended to be complementary to existing legislative provisions and codes issued by frontline regulators, such as the Securities and Futures Commission or the Insurance Authority. They assist in determining whether a person has complied with statutory performance requirements but do not override any legal statutes.

**Incorrect:** It is incorrect to state that the Guidelines have the force of law, as they are non-statutory guidance. Furthermore, the Guidelines are explicitly described as non-exhaustive, meaning conduct not specifically mentioned can still constitute a breach of performance requirements. They are also not intended to replace or override the specific codes or guidelines issued by industry regulators; rather, they function alongside them.

**Takeaway:** Registered intermediaries should view the MPFA Guidelines as a non-exhaustive, non-statutory framework that sets out minimum conduct standards while working in harmony with other relevant industry regulations and the MPFSO.

Correct: Under the MPFA Guidelines on Conduct for Registered Intermediaries, intermediaries are prohibited from offering gifts, rebates, or incentives to encourage clients to join a scheme, make contributions, or transfer benefits, unless the incentive falls under specific exceptions. Providing a cash-equivalent gift card is considered a prohibited incentive because it is an external monetary benefit that does not qualify as a fee discount within the MPF account, a reduction of the intermediary’s own direct fees, or an approved non-monetary membership privilege.

**Incorrect:** Offering a reduction in the intermediary’s own service fees is permitted because it is a direct discount on the cost of the professional service provided. Facilitating fee discounts through the allocation of bonus units within the MPF account is also allowed, as the benefit is reinvested directly into the client’s retirement savings. Similarly, non-monetary benefits provided through a membership privilege program are permissible provided the program is offered or approved by the scheme’s trustee or sponsor.

**Takeaway:** To maintain professional integrity and ensure clients make decisions based on product merit rather than short-term gains, the regulatory framework strictly limits promotional incentives to fee-related discounts or trustee-approved membership benefits, banning external gifts like cash or vouchers.

Correct: Under Section 34M of the Mandatory Provident Fund Schemes Ordinance (MPFSO), specific professionals including solicitors, counsel, and certified public accountants (CPAs) are granted an exception from the prohibition against providing regulated advice. This exception applies provided that the advice—such as an opinion on the timing or amount of an accrued benefit claim—is given wholly incidental to their professional practice. This ensures that professionals can provide comprehensive advice to their clients on matters like tax or estate planning without inadvertently breaching MPF regulations.

**Incorrect:** The requirement to be a registered intermediary or a responsible officer does not apply to professionals acting within the scope of the statutory exceptions. Furthermore, the exception for media publications specifically excludes those made available on a subscription-only basis; advice provided through a restricted newsletter would not qualify for the media exemption. Finally, the exemption for CPAs is based on the nature of their professional practice and does not require them to hold a dual role as a responsible officer for a principal intermediary.

**Takeaway:** While giving an opinion on material decisions like the timing of an MPF benefit claim is generally a regulated activity, the MPFSO provides specific exemptions for certain professionals, such as CPAs and solicitors, as long as the advice is wholly incidental to their core professional duties.

Correct: Under the Mandatory Provident Fund legislation, if a self-employed person is unable to provide evidence of their relevant income (such as a Notice of Assessment) and the trustee is not satisfied with the reason provided for this lack of evidence, the law requires that the person’s relevant income be set at the maximum level. Currently, the maximum level of relevant income for MPF purposes is $30,000 per month, which equates to $360,000 per year.

**Incorrect:** The basic allowance under the Inland Revenue Ordinance is only used as the deemed relevant income if the trustee is satisfied that the self-employed person genuinely cannot produce the required evidence. The minimum level of relevant income ($85,200 per year) is the threshold below which a self-employed person is not required to make mandatory contributions, but it is not the default figure used when evidence is withheld without a valid reason. There is no regulatory provision that uses industry-average income figures from the Census and Statistics Department to determine MPF contributions.

**Takeaway:** To avoid being assessed at the maximum contribution level, self-employed persons must provide evidence of their income to the trustee or provide a justification for its absence that the trustee finds acceptable.

Correct: Statements I, II, and III are accurate based on the MPF Ordinance. Statement I correctly identifies a casual employee in the catering industry (which includes food factories) when the employment is for a fixed period of less than 60 days. Statement II and Statement III correctly identify categories of individuals specifically exempted from the MPF System, namely self-employed licensed hawkers and domestic employees.

**Incorrect:** Statement IV is incorrect because the statutory definition of a “casual employee” within the designated industries (construction and catering) requires the employment to be on a day-to-day basis or for a fixed period of less than 60 days. Since the worker is engaged for a fixed period of 70 days, they do not meet the criteria for a casual employee and would instead be classified as a regular employee under the MPF System.

**Takeaway:** The MPF System provides specific classifications for casual employees in the catering and construction industries (less than 60 days) and lists specific categories of exempt persons, including domestic employees, licensed hawkers, and those outside the age range of 18 to 64. I, II & III only. Therefore, statements I, II and III are correct.

For existing members who chose to remain in an MPF-exempted ORSO registered scheme, the portion of their benefits defined as Minimum MPF Benefits (MMB) is subject to strict preservation and portability requirements. This ensures that the benefits derived from service after the MPF system’s implementation are treated similarly to mandatory contributions in an MPF scheme, meaning they generally cannot be accessed until the member reaches the age of 65 or meets other specific statutory criteria for early withdrawal. It is incorrect to assume that these benefits can be withdrawn as a cash lump sum upon any resignation, as the preservation rules are designed to prevent early leakage of retirement funds. Additionally, the Minimum MPF Benefits calculation does not cover the employee’s entire tenure if they joined before the MPF system began; it specifically applies to the period of service starting from the MPF implementation date. The requirement to preserve MMB is an ongoing regulatory obligation for the scheme and is not merely a transitional rule that disappears if the member stays in the ORSO scheme.

**Takeaway:** While MPF-exempted ORSO schemes offer flexibility, the Minimum MPF Benefits (MMB) portion of a member’s entitlement is governed by preservation rules equivalent to the MPF system to ensure that a baseline level of retirement savings remains protected until the statutory retirement age.

Correct: Statements I, III, and IV are accurate reflections of the administrative requirements under the Mandatory Provident Fund Schemes Ordinance. Intermediaries are required to notify the MPFA of any changes to their contact details or address within 7 working days. Additionally, the MPFA has the statutory power to suspend an intermediary’s registration if they fail to submit their annual return within the one-month grace period following the reporting period, and may proceed to revoke the registration if the return remains outstanding for 30 days after the suspension takes effect.

**Incorrect:** Statement II is incorrect because the penalty for failing to pay the annual fee within the prescribed one-month period is an additional surcharge of 10% of the unpaid fee. While a fine of $50,000 is mentioned in the regulations, it specifically applies to the offence of failing to notify the MPFA of changes (such as address or regulatory status) without a reasonable excuse, rather than the late payment of annual fees.

**Takeaway:** Registered intermediaries must distinguish between different compliance timelines and penalties; reporting changes requires action within 7 working days, while annual fees and returns have a one-month window, with non-compliance potentially leading to registration revocation. Therefore, statements I, III and IV are correct.

Correct: Statement I is correct because the Securities and Futures Commission (SFC) is the designated frontline regulator (FR) for principal intermediaries that are regulatees in the securities sector only. Statement III is correct because the Mandatory Provident Fund Schemes Authority (MPFA) has the statutory discretion to assign a different industry regulator as the FR if it is satisfied that the principal intermediary conducts the majority of its business activities under that regulator’s jurisdiction.

**Incorrect:** Statement II is incorrect because frontline regulators (MA, IA, or SFC) are specifically tasked with performing supervisory and investigatory functions regarding regulated persons; they conduct the investigations and then pass the findings to the MPFA for disciplinary consideration. Statement IV is incorrect because the online public register is not the only method of verification; the public may also verify an intermediary’s status by calling the MPFA hotline at 2918 0102 or by visiting the MPFA offices in person.

**Takeaway:** Under the MPF regulatory framework, frontline regulators are assigned based on the intermediary’s primary line of business to perform supervision and investigation, while the MPFA remains the central body for registration and disciplinary actions. Therefore, statements I and III are correct.

Correct: Statements I, II, and IV are correct. In an MPF trust arrangement, the trustee is the registered (legal) owner of the assets but does not hold beneficial ownership, as the assets are held exclusively for the members (beneficiaries). Any income or profits generated by the trust property must accrue to the beneficiaries. Furthermore, the trust deed is the foundational legal document that stipulates the specific duties, rights, and powers of the trustee and the beneficiaries.

**Incorrect:** Statement III is incorrect because a trustee is liable for any breach of trust that results in a loss or reduction of scheme assets. Under the principle of restoration, the trustee must restore the property at its own cost or pay sufficient compensation. The trustee is specifically prohibited from using the assets of the MPF scheme to indemnify itself for liabilities arising from its own mistakes or breaches of trust.

**Takeaway:** MPF trustees hold a significant fiduciary responsibility; they must act in the best interests of scheme members and are personally liable to restore any fund losses caused by a breach of the trust deed or their fiduciary duties. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and III are accurate reflections of the disciplinary and appeal procedures under the Mandatory Provident Fund Schemes Ordinance (MPFSO). The MPFA is legally required to provide a written notice of its preliminary view and the proposed sanction to ensure procedural fairness. The regulated person then has the right to defend their position through either oral or written representations. If the MPFA proceeds with a final decision, the intermediary has a two-month window to lodge an appeal with the independent Mandatory Provident Fund Schemes Appeal Board.

**Incorrect:** Statement IV is incorrect because the MPFA is empowered to disclose disciplinary decisions to the public except for private reprimands. Additionally, the statutory requirement for maintaining disciplinary records in the Register of Intermediaries is for a period of the last five years, rather than ten years.

**Takeaway:** The MPF regulatory framework ensures a transparent disciplinary process by requiring preliminary notices and representation rights, while providing a clear two-month statutory timeframe for appeals to be handled by the Appeal Board. Therefore, statements I, II and III are correct.