Mandatory Provident Fund Quiz 14

Correct: Statement I is accurate because bonds are debt instruments representing a loan to the issuer, whereas equities represent ownership (shares) in the company. Statement III is accurate because credit ratings provided by international agencies like Standard & Poor’s or Moody’s are standardized measures used by investors to gauge the creditworthiness of the issuer and the likelihood of default, which directly relates to the bond’s risk level.

**Incorrect:** Statement II is incorrect because zero-coupon bonds, by definition, do not make periodic interest (coupon) payments; instead, they are typically issued at a discount to their par value and provide a return through capital appreciation. Statement IV is incorrect because bond prices and interest rates have an inverse relationship; if market interest rates fall, the fixed coupon rate of an existing bond becomes more attractive to investors, leading to an increase in the bond’s market price.

**Takeaway:** Investors must distinguish between the creditor status of bondholders and the ownership status of stockholders, while also recognizing how external factors like interest rate fluctuations and credit ratings impact the valuation and risk of fixed-income securities. Therefore, the correct combination is I and III only.

Correct: Statements I, II, and IV are accurate reflections of the MPF regulatory framework. The Guidelines on Intermediaries (Part VI) set out the requirements for registration, conduct, and the Continuing Professional Development (CPD) of intermediaries. The Performance Presentation Standards are industry-led standards developed by the Hong Kong Trustees Association (HKTA) and the Hong Kong Investment Funds Association (HKIFA) to ensure that fund performance is reported consistently and fairly. Furthermore, the Compliance Standards for MPF Approved Trustees issued by the MPFA emphasize the need for robust internal control systems and a dedicated compliance function to ensure statutory adherence.

**Incorrect:** Statement III is incorrect because the Guidelines on ORSO Interface (Part V) are specifically designed to manage the transition and relationship between schemes regulated under the Occupational Retirement Schemes Ordinance (ORSO) and the MPF system, such as exemption applications and the transfer of benefits. They do not govern the daily investment valuation or Net Asset Value (NAV) calculations of MPF constituent funds, which are covered under different operational and investment guidelines.

**Takeaway:** A thorough understanding of the MPF system requires distinguishing between MPFA-issued guidelines (which cover operations, ORSO interface, and intermediaries) and industry-developed standards (like those for performance presentation) that promote market transparency and best practices. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: According to the Mandatory Provident Fund Schemes (General) Regulation, each constituent fund within an MPF scheme must maintain an effective currency exposure to the Hong Kong dollar of at least 30% of its net asset value. This requirement is designed to ensure a baseline level of stability relative to the local currency in which members will eventually receive their benefits. This exposure can be achieved through direct investment in Hong Kong dollar-denominated assets or through the use of currency hedging instruments, such as forward contracts, to convert foreign currency exposure back into Hong Kong dollars.

**Incorrect:** Requiring that 30% of physical assets be located within the Hong Kong territory is incorrect because the regulation focuses on currency exposure, not the physical location of the underlying assets. Limiting foreign currency investments to no more than 50% is inaccurate as the regulation allows for up to 70% foreign currency exposure, provided the 30% HKD minimum is met. Suggesting that a fund must invest exclusively in Hong Kong dollar-denominated debt securities is a misunderstanding of the rule, as funds are permitted to invest in a wide range of global assets as long as the effective currency exposure is managed to meet the 30% threshold.

**Takeaway:** To protect members from excessive exchange rate volatility, MPF constituent funds must ensure that at least 30% of their net asset value is effectively exposed to the Hong Kong dollar, either through asset denomination or financial derivatives.

Correct: To ensure the security and traceability of funds, employers are advised to make MPF contribution payments directly to the approved trustee or through their designated bank branches and customer service counters. If an employer fails to pay the mandatory contributions by the contribution day, they are liable to pay a contribution surcharge (typically 5% of the arrears) which is credited to the employees’ accounts. Furthermore, the law allows for financial penalties and criminal prosecution against employers who fail to comply with their contribution obligations.

**Incorrect:** Statement III is incorrect because the MPFA and regulatory guidelines explicitly state that payments by cash should be avoided. Additionally, payments should not be made through MPF intermediaries (whether in cash or otherwise) to minimize the risk of delayed processing or misappropriation; instead, direct channels to the trustee must be used.

**Takeaway:** Employers must prioritize direct payment methods to trustees and adhere strictly to deadlines to avoid mandatory surcharges, financial penalties, and potential criminal liability. Therefore, statements I, II and IV are correct.

Correct: Statements II, III, and IV accurately reflect the regulatory requirements for MPF contribution timing. For payments sent by post, the law considers the contribution paid on the date the mail would normally be delivered. In the case of direct credit, the payment is only recognized once the funds are actually credited to the MPF scheme’s bank account. Furthermore, if a remittance statement is sent via electronic means such as fax, the date of transmission is recognized as the date of receipt.

**Incorrect:** Statement I is incorrect because the rule regarding the date the trustee issues a direct debit instruction applies specifically to self-employed persons (SEPs) who do not need to submit a remittance statement. For employers using direct debit, the contribution is considered paid on the date the employer’s remittance statement is received by the trustee.

**Takeaway:** Different payment methods have different implications for the legal ‘payment date.’ Employers and SEPs must be aware of these distinctions—especially the requirement for employers to link direct debit payments to the receipt of the remittance statement—to avoid late payment penalties. Therefore, statements II, III and IV are correct.

Correct: The Monetary Authority (MA) is responsible for regulating authorized institutions, such as banks, that participate in the MPF system as custodians, guarantors, or providers of financial support to ensure they maintain financial soundness. Furthermore, the MA acts as the frontline regulator for registered MPF intermediaries whose core business is banking, handling their direct supervision and investigation regarding MPF-related conduct.

**Incorrect:** The Securities and Futures Commission (SFC) is primarily responsible for authorizing MPF schemes and their constituent funds, as well as supervising intermediaries whose core business is in the securities industry. The Insurance Authority (IA) ensures the solvency of insurance companies and supervises intermediaries whose core business is insurance. While the Mandatory Provident Fund Schemes Authority (MPFA) is the lead regulator for the MPF system as a whole, it delegates the direct supervision of specific industry-based intermediaries to these other frontline regulators.

**Takeaway:** The supervision of MPF intermediaries follows a functional regulatory approach where the MA, SFC, or IA oversees individuals based on whether their sponsoring institution’s core business is banking, securities, or insurance respectively.

Correct: Statements I, II, and IV accurately reflect the regulatory requirements for MPF intermediaries. Under Guideline III.7, intermediaries are permitted to offer discounts on their own fees and charges by reducing the amount directly payable by the client (Statement I). They may also provide non-monetary benefits associated with membership privilege programs that have been approved by the scheme’s trustee or sponsor (Statement II). Furthermore, Section 34ZL(1)(b) of the MPFSO mandates that intermediaries must exercise the care, skill, and diligence expected of a prudent person (Statement IV).

**Incorrect:** Statement III is incorrect because Guideline III.6 strictly prohibits registered intermediaries from offering any rebates, gifts, or incentives (including cash) to any person to encourage a client to join a scheme or transfer benefits. Offering a cash gift to a decision-maker like an HR manager would be a serious breach of conduct and potentially involve bribery concerns.

**Takeaway:** While the MPF regulatory framework prohibits most incentives to prevent conflicts of interest, it allows for specific exceptions such as fee discounts and approved non-monetary benefits, provided the intermediary maintains a high standard of professional care and acts in the client’s best interest. Therefore, statements I, II and IV are correct.

Correct: Statement II is correct because chauffeurs, bodyguards, and boatboys employed by an individual are generally included in the MPF System as their services are not considered to be rendered within a residential premises. Statement III is correct because the MPF System covers individuals who are employed by companies engaging in business in Hong Kong and perform their work within Hong Kong, regardless of whether they reside outside the territory (such as commuting from Macau or Shenzhen).

**Incorrect:** Statement I is incorrect because domestic employees, including servants, baby sitters, and gardeners, are specifically excluded from the MPF System if their services are rendered at the employer’s household or residential premises. Statement IV is incorrect because overseas employees entering Hong Kong under an employment visa are exempt from MPF requirements if their permission to stay does not exceed 13 months.

**Takeaway:** MPF coverage is determined by the nature of the workplace for domestic staff and the duration of the employment visa for foreign nationals, while cross-border employees working for Hong Kong entities are generally required to participate. II & III only. Therefore, statements II and III are correct.

Correct: Statements I, II, and III accurately reflect the statutory requirements for MPF registered intermediaries. Subsidiary intermediaries are mandated to report changes in contact details within 7 working days. Failure to pay the annual fee within the one-month grace period triggers a 10% surcharge on the outstanding amount. Furthermore, if an intermediary remains in default 30 days after their registration has been suspended for non-payment, the MPFA has the authority to revoke their registration entirely.

**Incorrect:** Statement IV is incorrect because the statutory notification period for a principal intermediary ceasing to carry on regulated activities is 7 working days, not 14 business days. Timely reporting is a critical regulatory requirement to ensure the MPFA’s register remains accurate and up-to-date.

**Takeaway:** Registered intermediaries must maintain strict adherence to administrative deadlines, specifically the 7-working-day notification rule for material changes and the one-month window for annual fee payments, to avoid financial penalties or the loss of their registration status. Therefore, statements I, II and III are correct.

Correct: Statements I, II, and IV are correct. Under the Employee Choice Arrangement (ECA), employees are entitled to transfer the accrued benefits derived from their own mandatory contributions made during current employment to an MPF scheme of their choice at least once per calendar year. Furthermore, the law stipulates that no fees or financial penalties can be charged for any transfer of accrued benefits, except for actual transaction costs (e.g., brokerage) paid to third parties. Regarding disclosure, the Fund Fact Sheet (FFS) must be issued at least twice a year and must include specific details such as the Fund Expense Ratio (FER) and the top ten asset holdings.

**Incorrect:** Statement III is incorrect because the Code on Disclosure for MPF Investment Funds provides specific exemptions for the On-going Cost Illustration (OCI). While most constituent funds must provide an OCI, MPF Conservative Funds, certain guaranteed funds, and newly launched funds are exempt from this specific requirement. MPF Conservative Funds are instead required to provide a separate illustrative example to members.

**Takeaway:** Scheme members enjoy portability of their own mandatory contributions under the ECA without being subject to trustee-imposed transfer fees. Transparency is maintained through standardized disclosure documents like the Fund Fact Sheet and OCI, though the OCI requirement varies depending on the nature of the constituent fund. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and III are accurate reflections of the regulatory framework and constituent fund requirements. The Securities and Futures Commission (SFC) is tasked with vetting and authorizing the disclosure of information in offering documents and marketing materials to ensure investor protection. Under the MPF system’s structural requirements, every constituent fund within a scheme must be made available to all members of that scheme to ensure equal access to investment options. Furthermore, the Mandatory Provident Fund Schemes Authority (MPFA) holds the primary responsibility for the registration of MPF schemes and the approval of constituent funds and pooled investment funds.

**Incorrect:** Statement IV is incorrect because there is a specific exemption to the unitization requirement. While most constituent funds must be unitized, those that are non-investment linked and provide investment guarantees are not required to be unitized. Additionally, the pricing for unitized constituent funds must be conducted on a forward basis, not a historical basis, to ensure fairness to all scheme members.

**Takeaway:** The regulation of MPF products is a coordinated effort where the SFC focuses on disclosure and marketing authorization, while the MPFA manages scheme registration and operational compliance. Constituent funds must adhere to strict structural rules, including universal availability to members and specific unitization requirements. Therefore, statements I, II and III are correct.

Correct: According to the regulatory framework of the Mandatory Provident Fund Schemes Ordinance (MPFSO), every registered MPF intermediary is subject to oversight by a single Frontline Regulator (FR). The MPFA assigns this FR based on the intermediary’s primary business activities. If a Principal Intermediary is primarily regulated by the Insurance Authority (IA), the IA becomes the FR for that firm. Crucially, the same FR regulates both the Principal Intermediary and all Subsidiary Intermediaries attached to it to ensure streamlined and consistent supervision.

**Incorrect:** It is incorrect to suggest that supervision is split between different regulators based on the specific product type sold, as the law requires a single FR to be assigned to the intermediary as a whole. The MPFA does not typically perform the direct day-to-day supervisory and investigatory functions itself; instead, it delegates these tasks to the FRs (MA, IA, or SFC) and focuses on registration and disciplinary actions based on the FR’s findings. Furthermore, there is no provision for shared supervision between two regulators for the same intermediary, as this would lead to regulatory overlap and inconsistency.

**Takeaway:** To ensure efficient oversight, the MPFA assigns one Frontline Regulator to a Principal Intermediary based on its main business sector, and this assignment automatically extends to all Subsidiary Intermediaries working under that firm.

Correct: Statement I is correct because under the principle of accountability, any profits derived by the trustee from the trust properties belong to the trust and must be transferred to the beneficiaries. Statement II is correct as the trust arrangement is designed to ring-fence scheme assets, ensuring they are protected from the creditors of the trustee, employer, or other service providers during financial difficulties. Statement IV is correct because the Mandatory Provident Fund Schemes Ordinance requires corporate trustees to maintain a minimum paid-up share capital and net assets of at least $150 million each to ensure financial soundness.

**Incorrect:** Statement III is incorrect because the law restricts the use of individual trustees to employer-sponsored schemes only. Master trust schemes and industry schemes, which involve multiple employers or specific industries, must be managed by corporate trustees to ensure a higher level of institutional oversight and capital backing.

**Takeaway:** The MPF framework utilizes a trust-based structure to ensure the legal segregation of assets and imposes strict capital and accountability requirements on trustees to safeguard the interests of scheme members.

Correct: Statements I, II, and IV are correct. Under the MPF System’s trust arrangement, the trustee is the registered owner of the assets but holds them solely for the benefit of the members (beneficiaries). Consequently, any income or investment profit generated by those assets belongs to the members. Furthermore, trustees have a fiduciary duty to exercise a high degree of diligence and care, which includes ensuring that scheme benefits are only paid out to members when they meet the specific legal requirements for entitlement.

**Incorrect:** Statement III is incorrect because a trustee is personally liable for any loss or reduction in scheme assets resulting from a breach of trust. According to the principle of restoration, a defaulting trustee must restore the property at its own cost and is strictly prohibited from using the assets of the MPF scheme to indemnify itself for liabilities arising from its own mistakes or failures.

**Takeaway:** MPF trustees are legal owners but not beneficial owners of scheme assets; they must act with a high degree of care and are personally liable to restore losses caused by a breach of trust without using scheme funds for indemnification. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct as the Occupational Retirement Schemes Ordinance requires the employer to notify both the Registrar and the members within 14 days of the start of a winding-up process. Statement II is accurate because, under MPF exemption regulations, the “minimum MPF benefits” (MMB) held within an ORSO scheme are protected from forfeiture, even if an employee is dismissed for cause, mirroring the protection offered in pure MPF schemes. Statement IV is correct because benefits received from an ORSO scheme upon termination of the scheme (rather than termination of employment, retirement, death, or incapacity) do not qualify for tax exemption on the employer-contributed portion.

**Incorrect:** Statement III is incorrect because a “Frozen” ORSO scheme implies that no future contributions will be made for future service. In such a scenario, the employer is legally obligated to enrol all existing and new eligible employees into an MPF scheme to fulfill their mandatory contribution requirements under the MPFSO. The ORSO scheme simply holds the past accrued benefits until they are eligible for withdrawal.

**Takeaway:** When managing or terminating an ORSO scheme in the MPF era, employers must adhere to strict notification timelines and tax regulations, while ensuring that the “minimum MPF benefits” portion of exempted schemes is treated with the same preservation and non-forfeiture protections as standard MPF benefits. Therefore, statements I, II and IV are correct.

Correct: Under the MPFA Guidelines on Conduct for Registered Intermediaries, intermediaries are generally prohibited from offering gifts, rebates, or incentives to induce clients to transfer benefits or join a scheme. Offering a cash-equivalent gift card is a violation because it is an external monetary incentive designed to encourage a specific transaction. Such inducements are restricted to ensure that clients make decisions based on the merits of the MPF scheme rather than short-term material gains.

**Incorrect:** Providing a discount on the intermediary’s own fees is a permitted exception because it involves a reduction in the cost of the professional service itself. Similarly, fee rebates credited directly to the client’s MPF account as bonus units are allowed as they enhance the client’s retirement savings within the regulatory framework. Non-monetary benefits, such as access to value-added services through an approved membership privilege program, are also permitted as they are considered part of the scheme’s legitimate service offering.

**Takeaway:** While most external inducements are prohibited to prevent biased decision-making, the regulations allow for specific exceptions including fee discounts, bonus units credited to the MPF account, and approved non-monetary membership privileges.

Correct: MPF Conservative Funds are subject to a specific regulatory safeguard regarding the deduction of administrative expenses, which include trustee, custodian, and investment management fees. These expenses can only be deducted from the fund in a particular month if the investment earnings achieved by the fund for that month exceed the prescribed savings rate as declared by the Mandatory Provident Fund Schemes Authority (MPFA). This mechanism ensures that in periods of extremely low returns, the member’s capital is not further eroded by standard operating fees.

**Incorrect:** It is incorrect to state that the fund provides a ‘hard’ guarantee linked to inflation; while the fund is conservative, it is not a guaranteed product and its returns may lag behind inflation. There is no regulatory provision that mandates a blanket waiver of fees for the first five years of an investment. Additionally, the conditions involving reaching age 65 or permanent departure from Hong Kong are ‘qualifying events’ associated with the triggering of a ‘soft’ guarantee in a Guaranteed Fund, rather than the fee deduction rules of a Conservative Fund.

**Takeaway:** A defining feature of the MPF Conservative Fund is its fee-capping rule, which prevents the deduction of administrative expenses unless the fund’s monthly performance outperforms the MPFA’s prescribed savings rate.

Correct: MPF Conservative Funds are subject to specific statutory safeguards designed to maintain high liquidity and minimize capital risk. These requirements include ensuring that 100% of the fund’s assets are invested in Hong Kong dollar-denominated instruments and that the average investment period (maturity) of the entire portfolio does not exceed 90 days. Furthermore, to protect member interests in these low-yield environments, the regulations strictly prohibit the imposition of initial fees, redemption charges, or bid-and-offer spreads on these funds.

**Incorrect:** While the fund is intended to be a low-risk option, it is not a guaranteed fund. It does not provide a hard or soft guarantee regarding the return of principal or a minimum rate of return, such as matching the rate of inflation. In fact, during periods of high inflation, the return on an MPF Conservative Fund may fail to keep pace with the rising cost of living. Therefore, any requirement suggesting a guaranteed return relative to inflation is not part of the regulatory framework for this fund type.

**Takeaway:** The mandatory features of an MPF Conservative Fund include a 100% Hong Kong dollar investment mandate, a 90-day maximum average investment period, and a total prohibition on entry and exit fees. I, II, and III only.

Correct: Statement I is accurate because the Mandatory Provident Fund Schemes Authority (MPFA) has the statutory power to revoke the registration of an intermediary and disqualify them from the industry for a specified period if they are convicted of an offence under the Mandatory Provident Fund Schemes Ordinance (MPFSO). Statement III is also correct as it reflects the maximum criminal liability for a person who, with an intent to defraud, fails to comply with an investigation requirement; such an offence carries a maximum fine of $1,000,000 and imprisonment for 7 years upon conviction on indictment.

**Incorrect:** Statement II is incorrect because the maximum pecuniary penalty the MPFA can impose for a failure to comply with a performance requirement is the greater of $10,000,000 or three times the profit gained or loss avoided, not $5,000,000. Statement IV is incorrect because the MPFSO disciplinary framework expressly allows the MPFA to issue both public and private reprimands depending on the circumstances of the case.

**Takeaway:** The MPFA maintains a robust enforcement regime where fraudulent obstruction of investigations can lead to significant prison sentences, and disciplinary breaches can result in substantial financial penalties of up to $10 million or the loss of professional registration. Therefore, statements I and III are correct.

Correct: For an MPF scheme to appoint individuals (natural persons) as trustees, the law requires a minimum of two such individuals to be appointed. These individuals must ordinarily reside in Hong Kong and demonstrate good reputation and character. Furthermore, to protect scheme members against losses arising from a trustee’s failure to perform or breach of duties, these individual trustees must provide a performance guarantee, such as an insurance policy or bank guarantee. This guarantee must represent 10% of the scheme’s net asset value, subject to a statutory maximum of $10 million.

**Incorrect:** Appointing only one individual is not permitted under the regulations, regardless of their residency status or the percentage of the guarantee provided. The requirement for a performance guarantee is mandatory for individual trustees and cannot be waived based on professional experience or a clean disciplinary record. Additionally, the statutory threshold for the guarantee is specifically 10% of the net asset value with a $10 million cap, making other percentages or higher caps legally inaccurate.

**Takeaway:** Individual MPF trustees are subject to strict residency and quantity requirements (at least two), and must back their fiduciary duties with a performance guarantee capped at $10 million to ensure member protection.

Correct: For an MPF Conservative Fund, the Mandatory Provident Fund Schemes (General) Regulation imposes strict limitations on fee deductions to protect members’ interests. Administrative expenses can only be deducted from the fund if the investment return of the fund for the relevant month exceeds the prescribed savings rate (PSR) as declared by the MPFA. If the return is lower than the PSR, no administrative expenses can be charged for that period.

**Incorrect:** The claim that expenses can be deducted regardless of performance if the expense ratio is low is incorrect because the performance hurdle is a mandatory statutory requirement for this specific fund type. The suggestion that only asset-based fees are prohibited is false, as administrative expenses are the specific focus of the PSR hurdle rule. Furthermore, the regulation relies on the monthly prescribed savings rate rather than a rolling twelve-month positive return or any other arbitrary performance metric.

**Takeaway:** MPF Conservative Funds are subject to a unique fee-charging mechanism where administrative expenses are contingent upon the fund’s performance exceeding the MPFA’s prescribed savings rate.

Correct: An MPF Exempted ORSO Scheme with Closed Membership is a specific arrangement where the employer allows existing members of the ORSO scheme to continue accruing benefits for their future service, but does not permit new eligible employees to join. Instead, all new employees must be enrolled in an MPF scheme. This allows the employer to honor existing commitments while transitioning the workforce to the MPF system over time.

**Incorrect:** A Frozen ORSO Scheme is incorrect because, in a frozen scheme, no future contributions are made for any members; benefits only accrue investment returns. A Top-up ORSO Scheme is incorrect because it implies all employees are in an MPF scheme, with the ORSO scheme providing additional, supplementary benefits. An MPF Exempted ORSO Scheme with Open Membership is incorrect because it would require the employer to offer new employees a choice between the ORSO scheme and an MPF scheme, rather than mandating the MPF scheme for them.

**Takeaway:** The primary distinction between ‘Closed Membership’ and ‘Frozen’ ORSO schemes lies in whether existing members continue to accrue new benefits for ongoing service; in a closed scheme they do, whereas in a frozen scheme they do not.

Correct: The “non-refusal of scheme applicants” provision is a statutory requirement under the Mandatory Provident Fund legislation. It mandates that a trustee of an MPF scheme cannot reject an application from an employer, a self-employed person, or an employee (for a personal account) as long as the applicant meets the eligibility criteria and complies with the administrative requirements for enrollment. This ensures that all eligible persons have access to the MPF system regardless of the size of their business or the potential profitability of their account.

**Incorrect:** Trustees are not permitted to reject applicants based on commercial factors such as administrative costs or the expected volume of contributions. There is no provision for a notice period to refuse a valid application, nor is the rule limited only to self-employed persons. The law is designed to prevent trustees from “cherry-picking” clients, which would undermine the universal nature of the mandatory retirement system.

**Takeaway:** The non-refusal rule is a fundamental consumer protection mechanism in the MPF framework that guarantees every eligible employer and individual can participate in a registered scheme by removing the trustee’s discretion to deny entry to compliant applicants.

Correct: Under the MPF conduct guidelines, principal intermediaries are required to maintain records of client forms for at least seven years. These records must be readily accessible for inspection by regulators, although they may be stored in electronic format. Additionally, to ensure consistency and accuracy in representations, subsidiary intermediaries are strictly prohibited from distributing any marketing materials that have not been vetted and approved by their principal intermediary. This ensures that all information provided to clients is clear, fair, and presents a balanced view of the risks involved.

**Incorrect:** The statutory retention period for client forms is specifically seven years; therefore, protocols suggesting five-year or ten-year durations are incorrect. Furthermore, the guidelines explicitly forbid the practice of asking clients to sign forms that are not yet completed in all material respects. Regarding marketing materials, the responsibility for approval lies with the principal intermediary rather than the MPFA, and subsidiary intermediaries do not have the autonomy to create their own promotional content independently of their firm’s oversight.

**Takeaway:** Principal intermediaries are responsible for maintaining client records for a minimum of seven years and must exercise strict control over the marketing materials used by their subsidiary intermediaries to ensure regulatory compliance and client protection.

Correct: Statements I, II, and III are correct. Under the Mandatory Provident Fund Schemes Ordinance (MPFSO), an applicant for Principal Intermediary (PI) registration must be a Type A regulatee and must not have had that status revoked on disciplinary grounds within the one-year period preceding the application. Furthermore, the unauthorized use of protected titles such as “principal intermediary” is a criminal offence punishable by a fine of $100,000. Additionally, a PI registration application is not valid unless it is accompanied by applications to appoint at least one individual as a Responsible Officer (RO).

**Incorrect:** Statement IV is incorrect because the penalty for carrying on regulated activities without registration on summary conviction is a fine of $100,000 and imprisonment for 6 months. The figures of $500,000 and 12 months do not align with the statutory penalties prescribed under the MPFSO for this specific contravention.

**Takeaway:** Registration as an MPF intermediary involves meeting specific eligibility criteria regarding regulatory history, the mandatory simultaneous appointment of a Responsible Officer, and strict compliance with title usage and licensing requirements to avoid criminal liability. Therefore, statements I, II and III are correct.

Correct: The MPF system was established to mitigate the financial risks associated with Hong Kong’s ageing population, where the proportion of residents aged 65 and over is expected to rise to 36% by 2064. It addresses the reality that many individuals lack the foresight or means to save for retirement independently, and it acknowledges that traditional family support systems are becoming less reliable as a sole source of income for the elderly.

**Incorrect:** The implementation of the MPF was not designed to abolish public social security or welfare programs. Instead, it serves as a mandatory, privately managed pillar that complements other forms of social assistance. The demographic challenge is characterized by an increasing number of retirees relative to the working population, not a decrease in life expectancy or a total elimination of government support.

**Takeaway:** The necessity of the MPF system is rooted in demographic shifts and the need to provide a structured, mandatory savings mechanism to supplement personal savings and family support. I, II, and III only.

Correct: Under the classification of Occupational Retirement Schemes Ordinance (ORSO) schemes based on the types of benefits provided, schemes are generally divided into defined contribution and defined benefit categories. Hybrid schemes, which possess characteristics of both types, are specifically categorized as defined benefit schemes. This is because the employer’s contribution rates in such schemes are typically not fixed and often require periodic recommendations from an actuary to ensure the fund can meet its future obligations, a hallmark of defined benefit structures.

**Incorrect:** Classifying the arrangement as a defined contribution scheme is incorrect because in a pure defined contribution scheme, both the employer and employee contribution rates are strictly defined, and the final benefit is solely based on accumulated contributions and investment returns. Categorizing it automatically as an MPF-exempted scheme is wrong because MPF exemption is a separate regulatory status that requires a specific application and the issuance of an exemption certificate by the Mandatory Provident Fund Schemes Authority (MPFA). Labeling it as a voluntary MPF scheme is inaccurate as ORSO schemes are distinct legal entities governed by the ORSO ordinance, whereas voluntary MPF contributions are made within the MPF system itself.

**Takeaway:** For regulatory and actuarial purposes under the ORSO framework, any retirement scheme that incorporates defined benefit elements—even if it also includes defined contribution features—is treated as a defined benefit scheme.

Correct: Statements I and II accurately reflect the conduct requirements under Section 34ZL(1)(g) of the MPFSO and the associated Guidelines VI.2. To safeguard client interests, intermediaries must not accept cash payments and must ensure that any cheques for contributions are made payable to the approved trustee or the scheme. Statement III is also correct, as Section 34ZL(2) stipulates that records of regulated activities must be maintained for a minimum of seven years to ensure an adequate audit trail for regulators.

**Incorrect:** Statement IV is incorrect because the Guidelines specify that if a client does not provide sufficient information for a suitability assessment, the intermediary should explain that the assessment cannot be performed or will be limited. Intermediaries are not permitted to fabricate or assume client data using “industry averages” to fulfill suitability obligations, as this would violate the requirement to have regard to the client’s actual particulars.

**Takeaway:** Registered intermediaries must maintain high standards of integrity and diligence by ensuring client assets are handled through proper channels (trustee-payable cheques) and that all regulated activity records are preserved for the statutory seven-year period. Therefore, statements I, II and III are correct.