Mandatory Provident Fund Quiz 17

Correct: Before accrued benefits can be officially classified as unclaimed, the trustee must follow a rigorous verification and contact process. This includes sending a formal notice to the member’s last known residential and correspondence addresses. Additionally, the trustee is required to make at least three attempts at different times and dates within a one-month period to reach the member through other known contact methods, such as telephone or fax. If these attempts fail, the trustee must also contact the member’s former employer to check for any updated contact information and repeat the notification process if new details are obtained.

**Incorrect:** Publicly advertising in newspapers is not a standard regulatory requirement for MPF trustees when dealing with individual unclaimed benefits. While beneficiaries are relevant in the event of a member’s death, they are not the primary contact for locating a living member who has simply failed to present a cheque. Furthermore, benefits do not automatically move to the Unclaimed Benefits Register based solely on the member reaching age 65; the classification depends on the failure of specific payment attempts and the subsequent inability to locate the claimant over a defined period.

**Takeaway:** To protect member interests, MPF trustees must exhaust specific communication channels—including mail, multiple telecommunication attempts, and employer inquiries—before benefits are deemed unclaimed and recorded in the MPFA’s Unclaimed Benefits Register.

Correct: The calculation of the Net Asset Value (NAV) per unit for an MPF fund is a standardized procedure designed to reflect the true value of a member’s investment. It involves summing the market value of all underlying assets and any cash holdings, then subtracting all accrued liabilities such as management and administrative fees. This net amount is then divided by the total number of units in issue.

**Incorrect:** Omitting any of these variables would result in an incorrect unit price. For instance, failing to subtract accrued expenses would overstate the fund’s value, while excluding cash holdings would understate it. All four components—market value, cash, accrued expenses, and the number of units—are essential for the calculation.

**Takeaway:** Accurate NAV calculation is vital for transparency and member protection, requiring the integration of all asset values, cash balances, and accrued liabilities relative to the total units issued. All of the above. Therefore, all of the above statements are correct.

Correct: According to the MPFA Guidelines on Conduct, when a registered intermediary makes a comparison of investment performance, they must ensure it is a “like with like” comparison. This means comparing constituent funds of the same type (e.g., equity fund to equity fund) with similar risk levels and investment objectives. Furthermore, the comparison should ideally cover a long-term period of at least five years where practicable and should focus on net performance (after fees and charges) rather than gross performance to provide a realistic view of potential outcomes for the client.

**Incorrect:** Focusing on gross performance is inappropriate because it does not account for the impact of fees, which are a critical component of MPF returns. Using short-term data, such as the last two years or the most recent quarter, is discouraged because short-term fluctuations are not reliable indicators of future performance in a long-term retirement savings context. Comparing funds of different types, such as an equity fund against a money market fund, is misleading as they have different risk-reward profiles and investment mandates.

**Takeaway:** To maintain professional standards and avoid misleading clients, performance comparisons must be based on long-term net returns between funds of the same category and risk profile.

Correct: Statement II is accurate as the Compensation Fund is explicitly designed as a “last resort” mechanism, meaning it is only utilized after professional indemnity insurance has been applied and upon application to the MPFA. Statement III correctly identifies the financial threshold for MPF trustees, who must maintain at least HK$150 million in both paid-up share capital and net assets. Statement IV is correct because the regulatory framework requires investment managers to be incorporated in Hong Kong and hold a Type 9 (asset management) license from the Securities and Futures Commission (SFC).

**Incorrect:** Statement I is incorrect because professional indemnity insurance in the MPF context specifically excludes losses that occur in the ordinary course of investment business, such as market fluctuations or poor investment performance. It is intended to cover operational risks like fraud, negligence, or theft. Therefore, any option including statement I is wrong.

**Takeaway:** The security of MPF scheme assets is maintained through a multi-layered safety net comprising stringent entry requirements for trustees, mandatory professional indemnity insurance for operational failures, and a Compensation Fund for losses due to misfeasance or illegal conduct, though it does not protect against standard market risks. The correct combination is II, III & IV only. Therefore, statements II, III and IV are correct.

Correct: Under the regulatory framework of the MPF system, the Securities and Futures Commission (SFC) is specifically responsible for authorizing MPF schemes and their constituent funds. This role involves vetting the disclosure of information in offering documents and ensuring that marketing materials related to these MPF products comply with regulatory standards for transparency and investor protection.

**Incorrect:** The Mandatory Provident Fund Schemes Authority (MPFA) serves as the primary administrator and registrar of the MPF system, focusing on overall scheme registration and legislative reform rather than the direct vetting of fund marketing materials. The Insurance Authority (IA) is primarily concerned with the financial soundness of insurance companies and the supervision of intermediaries with an insurance-based core business. The Monetary Authority (MA) regulates authorized institutions like banks that provide custodial or guarantee services to the MPF system, but it does not authorize the investment product disclosures.

**Takeaway:** The SFC plays a specialized role in the MPF ecosystem by authorizing investment products and vetting the accuracy and clarity of their disclosure and promotional materials.

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 actions to ensure the client is aware of the discrepancy. This includes informing the client of the risk mismatch, explaining the specific risks and features of the chosen fund, and confirming that the choice is the client’s own decision. Furthermore, the intermediary must document the mismatch, the explanations provided, and the client’s reasons for the choice, obtaining the client’s signature on this documentation and retaining the original for at least seven years.

**Incorrect:** It is incorrect to state that an intermediary must refuse the transaction; the regulatory framework allows for client autonomy provided that the risk mismatch is clearly disclosed and documented. Proceeding without additional documentation is also wrong, as the initial suitability assessment alone does not cover the specific requirements for a risk-mismatched selection. Finally, using a general liability waiver is not a substitute for the specific disclosure and documentation process mandated by the MPFA Guidelines regarding suitability and risk matching.

**Takeaway:** In the event of a risk mismatch where a client chooses a higher-risk fund than their profile suggests, the registered intermediary must prioritize disclosure, obtain the client’s specific reasons for the choice, and maintain a robust audit trail through signed documentation and, where possible, audio recording.

Correct: Statements I and II accurately reflect the registration requirements for a subsidiary intermediary, who must be a Type B regulatee (an individual licensed or registered for regulated activities) and must be attached to a principal intermediary. Statements III and IV correctly state the provisions of Section 107 of the Securities and Futures Ordinance (SFO), which criminalizes the use of fraudulent or reckless misrepresentations to induce others to join MPF schemes or invest in pooled funds, carrying a maximum penalty of a HK$1,000,000 fine and 7 years of imprisonment.

**Incorrect:** All four statements provided are factually correct according to the Mandatory Provident Fund Schemes Ordinance and the Securities and Futures Ordinance. Therefore, any combination that excludes one or more of these statements would be incomplete.

**Takeaway:** MPF intermediaries are subject to both registration requirements (such as being a Type B regulatee attached to a principal) and stringent market conduct regulations under the SFO, where misrepresentation carries heavy criminal sanctions including significant fines and jail time. Therefore, all of the above statements are correct.

Correct: Statements I, III and IV are correct. Under the MPFA Guidelines on Conduct Requirements, registered intermediaries must disclose whether they will receive any monetary or non-monetary benefits (Statement I) to ensure transparency regarding potential conflicts of interest. When advising on a transfer, intermediaries must specifically warn clients about the potential loss of any guarantee features in the original scheme (Statement III). Furthermore, intermediaries are required to provide clients with the relevant offering documents, such as the MPF Scheme Brochure, to ensure the client can make an informed decision (Statement IV).

**Incorrect:** Statement II is incorrect because if a client refuses to provide sufficient information for a suitability assessment, the intermediary should not make a recommendation. Making a recommendation based on the intermediary’s own preferences or a generic profile would violate the statutory requirement to have regard to the client’s specific particulars and ensure suitability.

**Takeaway:** Registered intermediaries must adhere to strict disclosure and suitability standards, which include informing clients of potential benefit losses in guaranteed funds and ensuring all recommendations are based on the client’s individual circumstances rather than the intermediary’s own assumptions. Therefore, statements I, III and IV are correct.

Correct: Under the Mandatory Provident Fund (MPF) legislation, while voluntary contributions are managed by the same approved trustees and subject to the same investment management and indemnity insurance requirements as mandatory contributions, they are treated differently regarding certain operational aspects. Specifically, the rules governing vesting, preservation, portability, and withdrawal of accrued benefits derived from voluntary contributions are determined by the governing rules of the individual MPF scheme rather than the rigid statutory requirements that apply to mandatory contributions.

**Incorrect:** The requirements for scheme assets to be managed by approved trustees, qualified investment managers, and custodians apply to all assets within the scheme, regardless of whether they are mandatory or voluntary. Similarly, the requirement for indemnity insurance to protect scheme assets against losses arising from misfeasance or illegal conduct is a statutory safeguard that covers both mandatory and voluntary contribution components.

**Takeaway:** While voluntary contributions benefit from the same high standards of professional management and asset protection as mandatory contributions, their flexibility lies in the fact that their vesting and withdrawal terms are defined by the specific scheme’s governing rules.

Correct: According to Section 34ZL(3) of the Mandatory Provident Fund Schemes Ordinance (MPFSO) and the related Guidelines, a principal intermediary is legally required to ensure that its appointed Responsible Officer (RO) is granted sufficient authority within the firm’s hierarchy. Furthermore, the firm must provide the RO with adequate resources and support to effectively carry out their specified responsibilities in overseeing the compliance of the principal intermediary and its attached subsidiary intermediaries.

**Incorrect:** Maintaining training records for five years is incorrect because the specific regulatory requirement under Guideline III.60(k) is a minimum of three years. The responsibility for supervising the daily conduct of subsidiary intermediaries rests with the principal intermediary, not the MPFA directly. While firms must maintain internal compliance manuals and controls, they are not required to seek prior approval from the MPFA for every internal update; rather, they must ensure these controls are robust enough to secure compliance with the law.

**Takeaway:** A core pillar of the MPF regulatory framework is the empowerment of the Responsible Officer, who must have the necessary organizational standing and resources to manage the compliance functions of a principal intermediary.

Correct: Under the MPFA Guidelines (specifically Section III.3), a registered intermediary is strictly required to ensure that any form to be signed by a client is duly completed in all material respects before the client is asked to sign it. This ensures that the client is fully aware of the specific instructions and information they are authorizing, thereby upholding the principles of acting honestly, fairly, and in the best interests of the client.

**Incorrect:** It is a breach of conduct to allow a client to sign a blank or partially completed form, regardless of whether the intermediary has the client’s verbal consent or intends to fill in the details accurately later. There is no regulatory allowance for back-office staff or intermediaries to add material information, such as account numbers or scheme names, after the signature has been obtained. Furthermore, providing a copy later does not rectify the initial failure to have the form completed before signing.

**Takeaway:** To maintain the integrity of the MPF system and protect client interests, all material fields on any regulatory or instruction form must be finalized prior to the client’s signature, and any subsequent alterations must be properly authenticated or initialed by the client.

Correct: For regular (non-casual) employees, the ‘contribution holiday’ refers to the period during which the employee is exempt from making their own mandatory contributions. This period includes the first 30 days of employment plus any subsequent incomplete contribution period (wage period). However, this exemption does not apply to casual employees, particularly those enrolled in Industry Schemes (such as those in the construction or catering industries), who must begin making mandatory contributions from their very first day of employment.

**Incorrect:** It is a common misconception that the contribution holiday applies to everyone; however, casual employees are specifically excluded to ensure immediate coverage in high-turnover industries. Additionally, the holiday only applies to the employee’s portion of the contribution. The employer is still required to make mandatory contributions for a regular employee starting from the first day of employment, even though the employee is currently in their holiday period. Finally, the statutory maximum income levels (such as $30,000 per month) cap the amount of contributions but do not eliminate the holiday for those entitled to it.

**Takeaway:** The MPF ‘contribution holiday’ is an employee-specific exemption for the initial period of employment that applies to regular employees but is not available to casual employees in Industry Schemes.

Correct: Statements I, II, and IV are correct according to the MPFA Guidelines VI.2. The post-sale call must be conducted by an authorized person of the principal intermediary who was not the subsidiary intermediary involved in the original transaction. If the principal intermediary does not have the necessary audio recording equipment, they are permitted to arrange for the approved trustee, sponsor, or promoter to handle the call. Furthermore, all records of these calls, whether audio or written documentation (in cases where the client could not be reached), must be maintained for a minimum of seven years.

**Incorrect:** Statement III is incorrect because the Guidelines explicitly state that the processing of the client’s fund selection instruction does not need to wait for the completion of the post-sale call process. This allows the administrative verification to proceed in parallel with the investment execution. Additionally, options that exclude any of the correct regulatory requirements (I, II, or IV) or include the incorrect requirement (III) do not accurately reflect the compliance standards.

**Takeaway:** The post-sale call is a mandatory compliance step for risk-mismatched MPF sales that requires independence from the selling intermediary and a long-term record-keeping trail, though it does not delay the actual processing of the client’s instructions. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and IV accurately represent the statutory conduct requirements under Section 34ZL of the Mandatory Provident Fund Schemes Ordinance (MPFSO). Registered intermediaries are legally required to exercise the care, skill, and diligence of a prudent person (34ZL(1)(b)). Furthermore, the legislation mandates that principal intermediaries maintain comprehensive records of activities conducted by both themselves and their attached subsidiary intermediaries to allow frontline regulators to monitor compliance (34ZL(2)). Additionally, intermediaries must use best endeavours to avoid conflicts of interest and are strictly required to disclose any such conflicts to the client (34ZL(1)(f)).

**Incorrect:** Statement III is incorrect because Section 34ZL(1)(c) of the MPFSO explicitly states that an intermediary may only advise on matters for which they are competent. A subjective belief that one is acting in the client’s best interest does not permit an intermediary to provide advice outside their professional competence or training.

**Takeaway:** The MPFSO conduct framework places specific duties on both the individual intermediary and the principal firm, emphasizing professional competence, the prudent person standard, and the principal intermediary’s duty to maintain oversight through record-keeping. Therefore, statements I, II and IV are correct.

Correct: The Mandatory Provident Fund (MPF) system in Hong Kong is built upon three core pillars: it is employment-based, meaning it covers the majority of the working population through their employment or self-employment; it is fully-funded, which ensures that the benefits payable to a member are based on the total contributions made plus any investment returns accumulated in their individual account; and it is privately-managed, where approved private-sector trustees and investment managers handle the administration and investment of the funds under the supervision of the MPFA.

**Incorrect:** Statement IV is incorrect because the MPF system is a defined contribution (DC) scheme, not a defined benefit (DB) scheme. In a defined contribution scheme, the contribution rates are fixed, but the final benefit depends on the investment performance of the chosen funds. In contrast, a defined benefit scheme guarantees a specific payout based on factors like salary history and years of service, which is not the structure of the MPF.

**Takeaway:** Understanding that the MPF system is employment-based, fully-funded, and privately-managed is essential for distinguishing it from other types of retirement protection models, such as social security or defined benefit pensions. Therefore, statements I, II and III are correct.

Correct: Under the World Bank’s five-pillar framework, the MPF System is categorized as the second pillar. This pillar is defined as a mandatory, privately-managed, and fully-funded contribution system. It is employment-based, meaning it targets the working population to help them accumulate wealth for retirement through individual accounts where the final accrued benefits depend on the amount contributed and the investment performance (defined contribution).

**Incorrect:** The first pillar describes a mandatory, contributory system that is publicly managed, whereas the MPF is managed by private-sector trustees. The third pillar consists of voluntary savings, such as personal insurance or voluntary MPF contributions, rather than the mandatory requirements. The zero pillar refers to non-contributory, publicly-financed social safety nets, such as universal old-age allowances, which are distinct from the employment-based MPF system.

**Takeaway:** The MPF System is the second pillar of Hong Kong’s retirement protection framework, characterized as a mandatory, privately-managed, and fully-funded defined contribution scheme.

Correct: Statements I, II, and IV accurately reflect the administrative and reporting obligations under the MPF regulatory framework. Principal intermediaries must notify the MPFA of changes in business address within 7 working days. If annual fees are not paid within the one-month grace period, a 10% surcharge is applied. Additionally, the MPFA follows a graduated enforcement path for failing to submit annual returns, where a suspension can lead to registration revocation if the return is not delivered within 30 days of that suspension.

**Incorrect:** Statement III is incorrect because the statutory notification period for a subsidiary intermediary to report a change of name is 7 working days, not 14 days. Most reporting requirements for changes in status or contact information for both principal and subsidiary intermediaries are strictly set at 7 working days to ensure the MPFA’s register remains current.

**Takeaway:** Registered intermediaries must be diligent with two primary timelines: 7 working days for reporting changes in particulars and one month for the payment of annual fees and submission of annual returns to avoid financial penalties or loss of registration. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and IV accurately reflect the regulatory requirements for post-sale calls. Processing a client’s instruction is not required to be delayed until the post-sale call is completed. If the principal intermediary lacks the necessary recording infrastructure, they are permitted to coordinate with the approved trustee, sponsor, or promoter to conduct the call. Furthermore, if the client remains unreachable after multiple attempts, the intermediary must send a written confirmation to the client summarizing the disclosure of the offering document and the key features explained.

**Incorrect:** Statement III is incorrect because the statutory retention period for audio records and related written documentation under the MPFA Guidelines is a minimum of seven years, rather than five years. This ensures that a sufficient audit trail is available for frontline regulators if needed.

**Takeaway:** While the post-sale call is a critical compliance step for protecting clients, it does not halt the administrative processing of the instruction; however, intermediaries must maintain rigorous records of these interactions for at least seven years. Therefore, statements I, II and IV are correct.

Correct: According to the Mandatory Provident Fund Schemes (Exemption) Regulation, while the general deadline for applying for MPF exemption was 3 May 2000, an exception is made for successor schemes. If a new ORSO scheme is established as a result of a genuine business transaction, such as a corporate restructuring or merger, it can be granted MPF exemption even after the original deadline. In such cases, employees who were already classified as “existing members” (those who joined the original scheme on or before 1 December 2000) are permitted to retain that status, which means they are not subject to the “minimum MPF benefits” preservation and portability rules that apply to new members.

**Incorrect:** It is incorrect to suggest that the 3 May 2000 deadline is absolute, as the law specifically allows for successor schemes in the context of business restructuring. The notion that existing members must automatically adopt the rules for new members is also false, as the regulation is designed to protect their original status during a valid transfer. Furthermore, there is no requirement for a total transfer of assets into an MPF Master Trust Scheme as long as the successor scheme successfully maintains its MPF-exempted ORSO status.

**Takeaway:** Successor schemes serve as a vital regulatory mechanism allowing employers to maintain MPF-exempted ORSO arrangements during business changes, ensuring that long-tenured employees can preserve their “existing member” status and the specific benefits associated with it.

Correct: Statements I, II, and III are accurate descriptions of the MPF System’s structural design. As a “fully-funded” system, the MPF framework ensures that assets are accumulated and held within the scheme to cover all future benefit payments when members reach retirement or meet other withdrawal criteria. Furthermore, mandatory contributions (from both employers and employees) are fully and immediately vested in the member, meaning the ownership of these funds is transferred to the member as soon as they are paid into the scheme. This immediate vesting also applies to any investment returns or capital gains generated by those mandatory contributions.

**Incorrect:** Statement IV is incorrect because a “fully-funded” system is the opposite of a “pay-as-you-go” system. In a pay-as-you-go system, the contributions of current workers are used to pay the benefits of current retirees, whereas the MPF System requires each member to accumulate their own pool of assets for their own future retirement.

**Takeaway:** The MPF System is characterized by its fully-funded nature and the immediate vesting of all mandatory contributions and their associated investment returns, ensuring that members have clear ownership of their retirement savings. Therefore, statements I, II and III are correct.

Correct: The MPFA is granted a wide range of supervisory and enforcement powers under the Mandatory Provident Fund Schemes Ordinance to ensure trustees comply with their obligations. These powers include the ability to direct a trustee to take specific remedial actions to correct a breach (I) and to initiate formal investigations into a trustee’s conduct or administration (II). Furthermore, the MPFA can impose financial penalties that are scaled according to the severity of the non-compliance (III) and, in the most serious cases, can revoke a trustee’s approval or initiate criminal prosecution (IV).

**Incorrect:** All the provided statements are accurate descriptions of the MPFA’s statutory powers. There are no incorrect statements in this set, as the regulatory framework allows for a tiered approach to enforcement, ranging from administrative directions to severe legal sanctions.

**Takeaway:** The MPFA maintains a robust enforcement regime that allows for proportionate responses to trustee breaches, ensuring the protection of scheme members through tools such as remedial orders, financial penalties, and the potential revocation of trustee status. All of the above. Therefore, all of the above statements are correct.

Correct: Under the Mandatory Provident Fund Schemes Ordinance (MPFSO), a “material decision” includes various choices made by a scheme member or employer. These encompass deciding whether to join a specific scheme (I), determining the amount of contributions, including voluntary ones (II), deciding to transfer benefits from an occupational retirement scheme (ORSO) to an MPF scheme (III), and choosing to invest in or transfer between specific constituent funds (IV). Since all these actions fall under the statutory definition of a material decision, an intermediary must be registered to invite or induce a client to make any of them.

**Incorrect:** None of the statements are incorrect. It is a common misconception that only mandatory contributions or the initial joining of a scheme count as material decisions. However, the regulatory framework intentionally includes voluntary contributions, fund switching (transferring between constituent funds), and ORSO-to-MPF transfers to ensure comprehensive protection for scheme members across all significant MPF-related actions.

**Takeaway:** The definition of a ‘material decision’ is broad and covers nearly every significant action a member can take regarding their MPF account, including joining, contributing, fund selection, and benefit transfers. Therefore, all of the above statements are correct.

Correct: Under the Mandatory Provident Fund Schemes Ordinance and Guidelines VI.2, a principal intermediary is statutory required to provide its Responsible Officer (RO) with sufficient authority, resources, and support to perform their oversight duties. The RO, in turn, must use their best endeavors to ensure the principal intermediary establishes and maintains effective internal controls and procedures. These systems are essential for securing compliance by both the principal intermediary and all subsidiary intermediaries attached to it.

**Incorrect:** It is incorrect to claim that subsidiary intermediaries are independently responsible for their own compliance without oversight, as the RO and principal intermediary share the burden of maintaining controls. Furthermore, the statutory retention period for client forms is seven years, not five. Finally, subsidiary intermediaries are strictly prohibited from creating or distributing their own marketing materials; they must only use materials that have been formally approved by their principal intermediary. Any alterations to client forms must always be initialed or authenticated by the client to ensure the integrity of the instructions.

**Takeaway:** The MPF regulatory framework emphasizes a top-down compliance structure where the principal intermediary empowers the Responsible Officer, who then ensures that robust controls are in place to govern the conduct of all subsidiary intermediaries and protect client interests.