Mandatory Provident Fund Quiz 27

Correct: Statements I, II, and IV are correct. The Mandatory Provident Fund Schemes Ordinance (Cap. 485) is the primary legislation that establishes the legal framework for the MPF system in Hong Kong. The Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A) is a key piece of subsidiary legislation that provides the detailed operational, administrative, and investment requirements for schemes. The Code on MPF Investment Funds is an administrative document issued by the MPFA that sets out the specific standards and requirements for the authorization and ongoing operation of constituent funds and pooled investment funds.

**Incorrect:** Statement III is incorrect because MPF Guidelines are not classified as subsidiary legislation. While they are issued by the MPFA under the authority of the Ordinance (specifically Section 6H) to provide practical guidance on compliance and the Authority’s expectations, they do not have the same formal legal status as the Ordinance or its Regulations. Failure to comply with Guidelines may, however, lead the MPFA to review the ‘fit and proper’ status of a trustee or intermediary.

**Takeaway:** A thorough understanding of the MPF regulatory hierarchy is vital for compliance. This hierarchy consists of the primary Ordinance, subsidiary legislation (Regulations, Rules, and Orders), and administrative instruments such as Codes and Guidelines, each serving a distinct role in the governance of the MPF system. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: According to the MPFA Guidelines on Conduct Requirements (Section 34ZL(1)(d)), registered intermediaries are required to take reasonable steps to establish a client’s personal circumstances, including their financial situation, investment experience, and investment objectives. If a client chooses not to provide this information, the intermediary’s duty is to explain that such a refusal will prevent them from performing an adequate suitability assessment and that any advice provided may not be appropriate for the client’s specific needs. This ensures the client is fully aware of the risks of proceeding without a comprehensive review.

**Incorrect:** It is incorrect to suggest that statutory conduct requirements can be bypassed by having a client sign a waiver; these are regulatory obligations that cannot be signed away. Recommending a default strategy like the DIS without attempting to understand the client’s profile does not satisfy the suitability requirement if the intermediary is providing personalized advice. Furthermore, while the intermediary must explain the limitations caused by missing information, they are generally not required to refuse the processing of a transfer if the client insists on proceeding on a transaction-only basis, provided the necessary warnings about the lack of suitability assessment have been given.

**Takeaway:** When a client withholds necessary KYC information, the intermediary must formally communicate that this limitation prevents a proper suitability assessment and may impact the quality of the advice offered.

Correct: According to the MPF Guidelines regarding post-sale controls, when a client chooses a constituent fund that does not match their assessed risk profile, a post-sale call must be conducted within seven working days. This call must be performed by an authorized person of the principal intermediary who was not the subsidiary intermediary involved in the original regulated activity, ensuring a degree of independence in the verification process.

**Incorrect:** It is a common misconception that the processing of the client’s investment instructions must be paused until the post-sale call is successfully completed; however, the guidelines state that processing need not wait for the call. If the client cannot be reached by phone after several attempts, the intermediary is not exempt from further action but must instead send a written document to the client to confirm the fund choice and the risk mismatch. Additionally, the regulatory requirement for retaining audio recordings or related written documentation is seven years, rather than a shorter period like two years.

**Takeaway:** To protect clients in risk-mismatch scenarios, the MPF regulatory framework requires an independent post-sale confirmation (either via an audio-recorded call or written correspondence) that must be documented and archived for seven years.

Correct: Tips that are collected by the employer, such as those added by customers to credit card bills or service charges included in the invoice, are classified as relevant income when they are subsequently distributed to employees. Because the employer manages the collection and distribution of these funds, they are treated as part of the employee’s remuneration for the purposes of calculating Mandatory Provident Fund contributions.

**Incorrect:** Payments in lieu of notice are specifically excluded from the definition of relevant income as they do not fall under the categories of wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite, or allowance. Holiday tour packages and other non-monetary benefits are not considered relevant income because they are not cash payments. Tips paid directly by a customer to an employee (such as cash left on a table) without any intervention or collection by the employer are also excluded from the calculation of relevant income.

**Takeaway:** For MPF purposes, relevant income generally encompasses monetary payments arising from employment, but excludes non-monetary benefits, specific statutory termination payments like severance pay, and gratuities paid directly to staff by third parties without employer involvement.

Correct: Under the regulatory framework of the Occupational Retirement Schemes Ordinance (ORSO), schemes are classified based on how benefits are calculated. While a defined contribution scheme bases benefits solely on accumulated contributions and investment returns, a defined benefit scheme uses a formula often involving years of service and salary. In cases where a scheme incorporates elements of both (a hybrid scheme), the regulations specify that such arrangements are classified as defined benefit schemes.

**Incorrect:** Categorizing the arrangement as a defined contribution scheme is incorrect because the inclusion of a formula-based benefit (final salary and years of service) takes precedence in the classification. While the term “hybrid” describes the functional nature of the scheme, it is not a separate regulatory category; instead, hybrid schemes are subsumed under the defined benefit classification. Finally, the method of benefit calculation (DB or DC) does not automatically grant MPF exempted status, as that requires a specific application and certificate from the Mandatory Provident Fund Schemes Authority (MPFA).

**Takeaway:** For the purposes of ORSO classification, any retirement scheme that includes defined benefit features, even if it also has defined contribution elements, is treated as a defined benefit scheme.

Correct: Statements II, III, and IV are correct according to Guidelines VI.2. The post-sale call must be conducted within seven working days and must be audio recorded. If the client cannot be reached after several attempts, the principal intermediary must send a written document to confirm the fund choice and the risk mismatch. Furthermore, all audio records and related documentation must be kept for a minimum period of seven years to ensure regulatory compliance and provide an audit trail.

**Incorrect:** Statement I is incorrect because the Guidelines explicitly state that the post-sale call should be conducted by an authorized person of the principal intermediary who is NOT the subsidiary intermediary who conducted the regulated activity. This requirement is intended to provide an independent layer of verification and ensure the client fully understands the implications of a risk mismatch.

**Takeaway:** The post-sale call process serves as a critical investor protection measure in the MPF industry, requiring independent verification of transactions involving risk mismatches and strict adherence to recording and retention timelines. Therefore, statements II, III and IV are correct.

Correct: Under the Mandatory Provident Fund Schemes Ordinance, relevant income includes any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite, or allowance. Tips are classified as relevant income if they are collected and distributed by the employer, such as service charges included in a bill or tips added to credit card payments. Additionally, “pickle charges” (charges for snacks provided on restaurant tables) are considered relevant income as they are typically distributed to staff as an implied term of the employment contract.

**Incorrect:** Payments made to an employee for significant personal events, such as a wedding anniversary gift or marriage gift, are not considered relevant income. Furthermore, cash tips that are paid directly by customers to the employee and retained or shared without any intervention or collection by the employer are excluded from the definition of relevant income.

**Takeaway:** To determine if tips or service charges are relevant income, one must identify if the employer was involved in the collection and distribution process; employer-handled tips are included, while direct customer-to-employee tips are excluded.

Correct: Statements I, III, and IV accurately reflect the MPFA Guidelines on Conduct for Registered Intermediaries regarding vulnerable clients. A client with a low level of education (primary level or below) is considered a vulnerable client. When such a client makes a “key decision,” such as transferring out of a guaranteed fund, the intermediary must provide extra care. This includes offering the client the opportunity to have a companion or an additional staff member witness the process (Statement I). Documentation of these choices must be signed by the client and kept by the principal intermediary for at least seven years (Statement III). Furthermore, transferring out of a guaranteed fund is explicitly listed as a key decision (Statement IV).

**Incorrect:** Statement II is incorrect because the Guidelines specify that if a post-sale call is used as the method of extra care, it must be conducted by an authorized person of the principal intermediary who is NOT the subsidiary intermediary who conducted the original regulated activity. This requirement ensures an independent check of the client’s understanding and the suitability of the process.

**Takeaway:** Registered intermediaries must identify vulnerable clients and provide additional support during key decision-making processes, ensuring independent verification or witnessing occurs and that all related records are maintained for a minimum of seven years. Therefore, statements I, III and IV are correct.

For a small balance claim, which applies when a member’s total MPF balance does not exceed HK$5,000, 12 months have passed since the last contribution, and no other MPF accounts are held, the trustee must pay the benefits in a lump sum. The statutory timeline for this payment is no later than 30 days after the claim is lodged or 30 days after the contribution day of the last contribution period, whichever is the later date. Withdrawal by instalments is strictly reserved for members who reach the age of 65 or qualify for early retirement at age 60; all other grounds for early withdrawal, including small balances, must be settled as a lump sum. Furthermore, trustees are prohibited from imposing administrative fees or financial penalties on the lump sum withdrawal of accrued benefits, except for actual transaction costs paid to third parties. The requirement for a medical certificate applies to claims for total incapacity or terminal illness, whereas a small balance claim relies on a statutory declaration regarding the member’s employment intentions and account status.

**Takeaway:** To qualify for a small balance withdrawal, a member must meet specific criteria regarding the balance amount and inactivity period, and the trustee is mandated to process the lump sum payment within a 30-day regulatory window without charging administrative fees.

Correct: Under the Mandatory Provident Fund (MPF) System, both the employer’s and the employee’s mandatory contributions, as well as any investment returns (income or profits) derived from them, are vested fully and immediately in the employee. Furthermore, while employee voluntary contributions vest immediately, the vesting of employer voluntary contributions is determined by the specific governing rules of the MPF scheme, which may include a vesting scale based on years of service.

**Incorrect:** Statement III is incorrect because the Employee Choice Arrangement (ECA) only allows relevant employees to transfer the accrued benefits derived from their own (employee) mandatory contributions made during current employment. It does not permit the transfer of the employer’s portion of mandatory contributions while the employee is still employed with that employer.

**Takeaway:** Mandatory contributions and their investment growth are always 100% vested in the member immediately, but portability under the ECA is restricted to the employee’s portion of mandatory contributions, and employer voluntary contributions follow scheme-specific vesting rules. Therefore, statements I, II and IV are correct.

Correct: Statements I, III, and IV accurately describe the regulatory framework under the Mandatory Provident Fund Schemes Ordinance (MPFSO). The MPFA has the authority to issue a written notice requiring a subsidiary intermediary to complete missing training within 30 days (or longer). If this notice is not followed, the MPFA may suspend the individual’s registration. Additionally, Frontline Regulators (FRs) are empowered to conduct inspections, which includes the right for an inspector to enter business premises at reasonable times to verify compliance with performance requirements.

**Incorrect:** Statement II is incorrect because the MPFA is the sole authority empowered to impose disciplinary sanctions, such as the suspension or revocation of registration. While Frontline Regulators (such as the SFC, HKMA, or IA) are responsible for the supervision and investigation of intermediaries assigned to them, they do not have the power to independently impose these specific disciplinary sanctions; they provide their findings to the MPFA for decision-making.

**Takeaway:** In the MPF regulatory regime, there is a clear division of labor: Frontline Regulators handle supervision and investigation, while the MPFA maintains the ultimate authority over registration status and the imposition of disciplinary sanctions for non-compliance with performance and training requirements. Therefore, statements I, III and IV are correct.

Correct: Statements I, II, and IV are accurate according to the Mandatory Provident Fund Schemes (General) Regulation. For an MPF Conservative Fund, administrative expenses can only be deducted if the fund’s monthly investment return exceeds the prescribed savings rate (PSR). The PSR is a benchmark determined by the MPFA based on the average interest rates offered by the three note-issuing banks in Hong Kong for savings accounts. Additionally, the regulations allow for a carry-forward mechanism where administrative expenses that could not be charged in a particular month due to the return being lower than the PSR can be recovered within the following 12 months, provided the fund’s performance in those subsequent months is sufficient.

**Incorrect:** Statement III is incorrect because the investment return must strictly exceed the prescribed savings rate for administrative expenses to be charged. If the return is exactly equal to the PSR, the excess is zero, and therefore no administrative expenses can be deducted for that specific month.

**Takeaway:** The MPF Conservative Fund is designed with a unique fee-charging restriction to protect members’ capital during low-interest environments; fees are essentially “contingent” on the fund outperforming a basic savings rate benchmark, with a 12-month window to recover uncharged fees. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because although the standard deadline for MPF exemption applications was 3 May 2000, an exception exists for successor schemes established due to genuine business transactions (like restructuring), which may apply for exemption after this date. Statement II is correct as ORSO schemes provide flexibility in their benefit structure, allowing for either defined contribution or defined benefit designs, whereas MPF schemes are strictly defined contribution.

**Incorrect:** Statement III is incorrect because the “Minimum MPF Benefits” (MMB) preservation and portability requirements specifically apply to “new members” of an MPF-exempted ORSO scheme; “existing members” (those who joined on or before 1 December 2000) are generally not bound by these specific MMB provisions. Statement IV is incorrect because vesting in ORSO schemes is governed by the specific rules of the scheme itself, unlike MPF mandatory contributions which must vest 100% immediately by law.

**Takeaway:** While the MPF system is standardized and mandatory, MPF-exempted ORSO schemes retain unique features such as the ability to operate as defined benefit schemes and follow custom vesting schedules, provided they meet specific regulatory requirements for successor schemes and member classification. Therefore, statements I and II are correct.

Correct: Statements I, II, and IV accurately reflect the regulatory requirements for MPF constituent funds. Statement I correctly identifies the 30% minimum Hong Kong dollar currency exposure rule, which ensures a portion of the fund is protected from foreign exchange volatility. Statement II describes the unique fee structure of an MPF Conservative Fund, where administrative expenses are contingent upon the fund’s performance exceeding the MPFA’s prescribed savings rate. Statement IV correctly states the general 10% investment spread limit intended to ensure portfolio diversification and mitigate counterparty risk.

**Incorrect:** Statement III is incorrect because MPF legislation strictly prohibits constituent funds and Approved Pooled Investment Funds (APIFs) from borrowing securities under any circumstances. While borrowing money is permitted for specific purposes, such as settling investment transactions or paying out accrued benefits to members, the borrowing of securities is not allowed.

**Takeaway:** MPF investment managers must balance portfolio diversification (10% limit) and currency requirements (30% HKD) while adhering to strict prohibitions on borrowing securities and performance-linked fee restrictions for conservative funds. Therefore, statements I, II and IV are correct.

Correct: Under the Mandatory Provident Fund Schemes Ordinance and related guidelines, the deemed date of payment depends on the specific method chosen by the employer. For payments made via direct credit, the contribution is legally considered paid only on the date the funds are actually credited to the MPF scheme’s bank account. This requires employers to account for interbank processing times to ensure compliance with the contribution deadline.

**Incorrect:** The date an employer initiates a transfer instruction through online banking is not the payment date because the funds have not yet reached the scheme. While submitting a remittance statement is a mandatory requirement, it only serves as the legal date of payment for specific methods such as direct debit or the deduction of reserves from an employer’s MPF account. Furthermore, the issuance of a receipt or confirmation by the trustee is an administrative follow-up and does not define the statutory date of payment.

**Takeaway:** Employers must distinguish between different payment channels; specifically, for direct credit, the ‘date of payment’ is the date the scheme’s account is credited, whereas for direct debit, it is the date the trustee receives the remittance statement.

Correct: Statements I, III, and IV are correct according to the Guidelines on Conduct for Registered Intermediaries. Intermediaries must ensure that any cheques received from clients are crossed and made payable only to the approved trustee or the registered scheme to ensure the security of client assets. Furthermore, principal intermediaries are required to maintain records of regulated activities, including the rationale for advice and client acknowledgments, for a minimum period of seven years. When discussing costs, intermediaries should refer clients to key disclosure tools such as the fund expense ratio (FER) and the fee table to facilitate informed decision-making.

**Incorrect:** Statement II is incorrect because registered intermediaries are strictly prohibited from receiving cash payments from clients. The guidelines specify that they should generally not handle client assets, and if they do handle cheques, specific restrictive conditions apply. There is no provision that allows for the acceptance of cash regardless of whether an acknowledgment is provided.

**Takeaway:** To ensure regulatory compliance and client protection, MPF intermediaries must strictly adhere to the prohibition on cash handling, maintain comprehensive records for seven years, and utilize standardized disclosure metrics like the FER when comparing fund costs. Therefore, statements I, III and IV are correct.

Correct: 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 their ‘lifecycle’ rules. Specifically, the provisions for vesting (when the money belongs to the employee), preservation (keeping the money in the system), portability (transferring the funds), and withdrawal (accessing the cash) are determined by the specific governing rules of the MPF scheme rather than the strict statutory requirements that apply to mandatory contributions.

**Incorrect:** Trust arrangements, the use of approved trustees, indemnity insurance, and the appointment of qualified investment managers are all governed by the same MPF legislative provisions for both mandatory and voluntary contributions. This ensures that all assets within the MPF system, regardless of whether they are mandatory or voluntary, are subject to the same high standards of professional management and asset protection.

**Takeaway:** Although voluntary contributions benefit from the same professional management and regulatory oversight as mandatory contributions, they offer greater flexibility because their specific terms for vesting and withdrawal are defined by the individual scheme’s rules.

Correct: Statement I is correct as a ‘Closed Membership’ MPF Exempted ORSO scheme prohibits new employees from joining, requiring them to be covered by an MPF scheme instead. Statement II accurately reflects the statutory requirement under the Occupational Retirement Schemes Ordinance for an employer to notify the Registrar and members within 14 days of starting a winding-up process. Statement IV is correct because employer-funded benefits paid out upon scheme termination (rather than retirement, death, or incapacity) do not qualify for tax exemptions and are thus subject to salaries tax.

**Incorrect:** Statement III is incorrect because ‘existing members’ (those who were members of the ORSO scheme before the MPF system was introduced) who choose to remain in an MPF Exempted ORSO scheme are specifically exempt from the preservation, portability, and withdrawal requirements that apply to ‘minimum MPF benefits’. These requirements generally apply to ‘new members’ who joined the scheme after the MPF launch.

**Takeaway:** When managing ORSO schemes in the MPF era, practitioners must distinguish between the rights of existing and new members, especially regarding the preservation of benefits and the specific notification timelines required during scheme termination. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because Section 34ZL(3)(a) of the Mandatory Provident Fund Schemes Ordinance (MPFSO) mandates that a principal intermediary must establish and maintain proper controls and procedures to ensure compliance by both the firm and its attached subsidiary intermediaries. Statement III is correct as it accurately reflects the statutory requirement under Section 34ZL(1)(b) for intermediaries to exercise the level of care, skill, and diligence expected of a prudent person in that regulated activity.

**Incorrect:** Statement II is incorrect because the duty to act in the best interests of the client is paramount; disclosing a conflict does not grant permission to prioritize the firm’s interests over the client’s. Statement IV is incorrect because Section 34ZL(1)(c) specifies that an intermediary may only advise on matters for which they are competent, meaning registration alone does not authorize them to advise on all products if they lack the specific expertise.

**Takeaway:** The conduct requirements under the MPFSO emphasize a combination of individual professional standards (honesty, competence, and diligence) and institutional responsibility (oversight and internal controls) to protect the interests of MPF scheme members. Therefore, statements I and III are correct.

Correct: Statement I accurately reflects the Employee Choice Arrangement (ECA), which empowers employees to transfer accrued benefits from their own mandatory contributions made during current employment to a scheme of their choice at least once per calendar year. Statement III is also correct, as the Code on Disclosure for MPF Investment Funds mandates that trustees issue Fund Fact Sheets at least twice every financial year to ensure members receive updated information on fund performance, risks, and expenses.

**Incorrect:** Statement II is incorrect because the MPF regulatory framework prohibits trustees from charging fees or imposing financial penalties for switching or transferring accrued benefits, except for actual transaction costs (like brokerage or stamp duty) paid to third parties. Statement IV is incorrect because, while the On-going Cost Illustration (OCI) is a standard requirement for most funds, MPF Conservative Funds, certain guaranteed funds, and newly launched funds are specifically exempted from providing an OCI, though Conservative Funds must provide a different illustrative example.

**Takeaway:** MPF regulations prioritize member mobility and transparency by allowing annual transfers of employee contributions without administrative fees and requiring periodic disclosure through Fund Fact Sheets and Fee Tables. Therefore, statements I and III are correct.

Correct: Under the Occupational Retirement Schemes Ordinance (ORSO) framework, schemes are primarily classified into two categories based on the nature of the benefits provided: Defined Contribution and Defined Benefit. A Defined Benefit scheme is one where the payout is typically determined by a formula involving factors such as years of service and salary. According to regulatory guidelines, any hybrid scheme that incorporates features of both defined contribution and defined benefit models is legally classified as a Defined Benefit scheme.

**Incorrect:** A Defined Contribution scheme is characterized by fixed contribution rates where the final benefit is solely dependent on the accumulated contributions and investment returns, which does not match a formula-based payout. While the term “hybrid” accurately describes the scheme’s design, it is not a distinct regulatory category under ORSO; such schemes are absorbed into the Defined Benefit classification. Furthermore, MPF exemption is a status granted through a specific application process and is not an inherent classification based solely on the benefit structure.

**Takeaway:** In the context of ORSO schemes, any arrangement that includes Defined Benefit characteristics, even if it also has Defined Contribution elements, must be treated and classified as a Defined Benefit scheme.

Correct: According to the MPF legislation and the Code on MPF Investment Funds, a Statement of Investment Policy (SIP) must be maintained for each constituent fund and Approved Pooled Investment Fund (APIF) to ensure a high degree of transparency. The mandatory contents of the SIP include the expected return of the overall portfolio (Statement I), the policy regarding the acquisition, holding, and disposal of financial futures and option contracts (Statement II), and whether the fund will engage in securities lending (Statement IV).

**Incorrect:** Statement III is incorrect because the SIP is designed to disclose the fund’s investment strategy, asset allocation, and risk/return profile rather than personnel details. While information regarding the investment manager is required in other scheme offering documents, the specific professional biographies of individual investment committee members are not a required component of the SIP.

**Takeaway:** The Statement of Investment Policy (SIP) is a critical transparency tool that must detail the fund’s objectives, asset mix, risk/return expectations, and specific operational policies like derivatives usage and securities lending to ensure members are fully informed. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: The Hong Kong MPF System is defined as a “fully-funded” system, which means it maintains actual assets (the contributions and investment returns held in individual accounts) that are sufficient to meet all future benefit payment obligations. Unlike “pay-as-you-go” systems where current workers fund current retirees, the MPF ensures that every dollar required for a member’s future withdrawal is already present in the system. Additionally, mandatory contributions are subject to “immediate vesting,” meaning the member gains full ownership of the contributions and any associated investment returns the moment they are paid into the scheme, without any requirement for a minimum period of service.

**Incorrect:** The MPF system is not a “pay-as-you-go” model, so any suggestion that current contributions are used to pay current retirees is inaccurate. Furthermore, mandatory contributions are never subject to a vesting scale or a minimum employment period (such as two or five years); such scales only apply to the employer’s voluntary contributions in certain circumstances. Finally, the system does not allow for the forfeiture of mandatory contributions by the employer, nor does it rely on government guarantees to meet its funding requirements, as it is entirely asset-backed.

**Takeaway:** A core pillar of the MPF System is that it is fully-funded and provides immediate vesting of mandatory contributions, ensuring that members have immediate legal ownership of their retirement savings and that the system remains financially sustainable through individual asset accumulation.

Correct: Statements I, II, and III accurately reflect the MPF regulatory framework. The Mandatory Provident Fund Schemes (Fees) Regulation (Section 2.3.2c) outlines the fees for registering principal and subsidiary intermediaries. The Mandatory Provident Fund Schemes (Exemption) Regulation (Section 2.3.2b) specifically handles the requirements and certificates for ORSO schemes seeking exemption. Furthermore, the MPFA issues Guidelines (Section 2.3.3b), such as Part II on Reporting Requirements, to assist service providers in meeting their statutory obligations.

**Incorrect:** Statement IV is incorrect because the Code on Disclosure for MPF Investment Funds is a code issued by the MPFA to supplement the legislation, not a piece of subsidiary legislation itself. While regulations like the General Regulation are enacted as subsidiary legislation, Codes and Guidelines are administrative instruments used to facilitate compliance and provide detailed guidance.

**Takeaway:** It is essential to distinguish between the different tiers of the MPF regulatory regime: the primary Ordinance, the subsidiary Regulations (General, Exemption, and Fees), and the non-statutory Codes and Guidelines issued by the MPFA. Therefore, statements I, II and III are correct.

Correct: Statements I, II, and IV accurately reflect the regulatory requirements for MPF principal intermediaries. Guidelines require that all audio and written records, as well as business records relating to regulated activities, be retained for a minimum of seven years. Any identified failure to comply with the MPFSO or relevant Guidelines must be reported to the frontline regulator (and industry regulator if applicable) within 14 working days. Additionally, to prevent fraud, intermediaries must have controls to ensure subsidiary intermediaries do not receive cash or uncrossed cheques that are not payable to the trustee or the scheme.

**Incorrect:** Statement III is incorrect because the Guidelines distinguish between general complaint reporting and serious/criminal complaints. While a summary of all complaints is provided to the MPFA quarterly, complaints of a criminal nature (such as forgery or misappropriation) or other serious matters (such as unauthorized benefit transfers) must be reported to the frontline and industry regulators immediately.

**Takeaway:** MPF principal intermediaries must maintain a robust compliance framework that includes a seven-year record retention policy, a 14-working-day reporting window for compliance breaches, and an immediate reporting obligation for serious or criminal client complaints. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and III are accurate descriptions of MPF disclosure and fund types. The Fund Fact Sheet (FFS) is a mandatory disclosure document issued on a half-yearly basis that provides a summary of a constituent fund’s performance, risk level, and expense ratio. A soft guarantee is specifically characterized by the presence of qualifying conditions, such as a minimum period of participation or a ‘career average’ requirement, which the member must satisfy to receive the guaranteed return.

**Incorrect:** Statement IV is incorrect because it describes a soft guarantee rather than a hard guarantee. A hard guarantee is defined by the absence of any qualifying conditions; the guarantor provides the minimum return or capital preservation regardless of the member’s length of stay or other criteria. Therefore, attributing ‘career average’ conditions to a hard guarantee is a conceptual error.

**Takeaway:** MPF intermediaries must ensure clients understand that while the Fund Fact Sheet provides essential periodic updates on fund health, the specific terms of a guaranteed fund—particularly whether it is a hard or soft guarantee—significantly impact the member’s eligibility for protected returns. Therefore, statements I, II and III are correct.