Mandatory Provident Fund Quiz 30

Correct: Statements I, III, and IV are correct. To ensure the security and timely processing of MPF contributions, the MPFA advises that payments should be made directly to the trustees or their designated bank branches/customer service counters. Paying by cash is discouraged to minimize risks. If contributions are not paid by the settlement date, a contribution surcharge (typically 5% of the arrears) is imposed to compensate the employees, and the MPFA may take further legal action including financial penalties or prosecution.

**Incorrect:** Statement II is incorrect. The guidelines specifically state that payments through MPF intermediaries, whether by cash or other means, should be avoided. This is a measure to prevent potential misappropriation of funds or administrative delays that could lead to late payment penalties for the employer.

**Takeaway:** Employers must remit MPF contributions directly to trustees using secure methods; reliance on intermediaries for fund transmission is discouraged, and non-compliance with deadlines results in mandatory surcharges and potential legal liability. Therefore, statements I, III and IV are correct.

Correct: Under the Disclosure Code, MPF trustees are mandated to provide scheme members with an Annual Benefit Statement (ABS) within three months after the end of the scheme’s financial period. This document serves as a historical record that confirms membership details, account balances, and the specific inflows and outflows, such as contributions and investment gains or losses, that occurred during that financial period.

**Incorrect:** The Fund Expense Ratio (FER) is only required to be disclosed for funds that have at least two years of history; therefore, a fund with only 12 months of operation is exempt from this specific disclosure. Additionally, the FER must be a comprehensive measure of costs, meaning it must include fees and charges incurred at the underlying Approved Pooled Investment Fund (APIF) level if the constituent fund invests in one. The Annual Benefit Statement is a historical summary of actual transactions and balances, not a projection of future retirement outcomes.

**Takeaway:** MPF regulatory requirements ensure transparency by requiring the issuance of the Annual Benefit Statement within a strict three-month window following the financial year-end and by mandating a comprehensive Fund Expense Ratio disclosure for funds with a sufficient operating history of at least two years.

Format your explanation in THREE separate paragraphs with an empty line between each:

**Correct:** Statements I, II, and IV accurately describe the enforcement process for continuing training non-compliance under the Mandatory Provident Fund Schemes Ordinance (MPFSO). The MPFA has the power to issue a written notice (minimum 30 days) to an individual who fails to complete specified training. If the individual fails to comply with this notice, the MPFA may suspend their registration. Furthermore, if the requirement is still not met within 30 days after the suspension begins, the MPFA may proceed to revoke the registration.

**Incorrect:** Statement III is incorrect because the MPFA is the sole authority empowered to impose disciplinary sanctions on registered intermediaries. While Frontline Regulators (FRs) are responsible for the supervision and investigation of intermediaries assigned to them, they do not have the power to revoke or suspend registrations; they provide the findings of their investigations to the MPFA for disciplinary decision-making.

**Takeaway:** The MPFA follows a structured disciplinary progression for training failures—notice, suspension, and then revocation—and maintains exclusive authority over the imposition of sanctions, regardless of which Frontline Regulator conducts the initial investigation. Therefore, statements I, II and IV are correct.

Correct: According to the MPFA Guidelines on Conduct, registered intermediaries are generally prohibited from offering rebates, gifts, or incentives to encourage clients to join a scheme or transfer benefits. However, specific exceptions are permitted, including a discount on the registered intermediary’s own fees and charges by way of a reduction in the amount directly payable by the client. This is considered a legitimate adjustment of the intermediary’s own service costs.

**Incorrect:** Offering supermarket vouchers, high-end consumer electronics like smartphones, or direct cash rebates to a client’s personal bank account are all prohibited forms of monetary or non-monetary benefits. These incentives are intended to influence a client’s decision-making process regarding their MPF benefits and do not fall under the narrow exceptions such as bonus units credited to the MPF account or approved membership privilege programs.

**Takeaway:** To maintain professional integrity and ensure clients make decisions based on fund performance and services, intermediaries must not use external gifts or cash inducements; only specific fee-related discounts or scheme-approved non-monetary benefits are allowed.

Correct: Statements I, II, and IV are correct. In the context of MPF bond funds, price sensitivity to interest rate changes (duration risk) increases with the term to maturity. Consequently, long-term bond funds are more volatile in a changing interest rate environment than short-term ones. To compensate for this risk, long-term bonds generally offer higher yields. Additionally, credit ratings are essential metrics for assessing the default risk of the underlying debt issuers, directly impacting the fund’s risk profile.

**Incorrect:** Statement III is incorrect because the primary objective of a bond fund is typically to generate a stable and modest level of income from interest payments. While capital appreciation can occur through bond trading or market movements, it is generally considered a secondary objective compared to income generation.

**Takeaway:** When selecting MPF bond funds, members must balance the desire for higher yields against interest rate sensitivity and credit risk, noting that these funds prioritize stable income over aggressive capital growth. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and IV are accurate according to the MPFA Guidelines. Intermediaries are required to disclose whether the monetary or non-monetary benefits they receive vary depending on the specific schemes or constituent funds chosen by the client (III.35). They must also provide the latest version of the offering document to ensure the client has sufficient information for material decisions (III.37). Furthermore, the principal intermediary is responsible for retaining copies of these disclosure documents for a minimum period of seven years (III.36).

**Incorrect:** Statement III is incorrect because the guidelines require that performance comparisons be made on a “like with like” basis (comparing funds of the same type), should ideally cover a long-term period of at least five years where practicable, and should focus on net performance rather than gross performance to avoid misleading the client (III.41).

**Takeaway:** To ensure investor protection and transparency, registered intermediaries must provide essential scheme documentation, disclose potential conflicts of interest regarding their compensation, and adhere to strict standards of fairness when presenting historical fund performance. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, and III are accurate under the Mandatory Provident Fund Schemes Ordinance. Statement I refers to the ‘Employee Choice Arrangement’ (ECA), which allows employees to transfer their own portion of mandatory contributions made during current employment to a personal account of their choice once per calendar year. Statement II is correct because the employer’s portion of mandatory contributions from current employment is not portable under the ECA to preserve the employer’s right to use those benefits to offset Long Service Payments or Severance Payments. Statement III is correct because benefits accumulated from previous employment (even if currently held within a contribution account) are fully portable and can be transferred at any time without the once-per-year restriction.

**Incorrect:** Statement IV is incorrect because the ECA is a ‘semi-portability’ mechanism designed for active employees. Exercising the right to transfer benefits does not terminate the employee’s participation in the scheme; the employer and employee must continue making future contributions into the original scheme designated by the employer.

**Takeaway:** The MPF system distinguishes between different types of accrued benefits regarding portability: employee mandatory contributions from current employment are portable once a year, while benefits from former employment are portable at any time. Employer mandatory contributions from current employment remain restricted. I, II & III only. Therefore, statements I, II and III are correct.

Correct: Under Section 34ZL(1)(d) of the Mandatory Provident Fund Schemes Ordinance (MPFSO), a registered intermediary is legally required to have such regard to the client’s particular circumstances as is necessary for ensuring that the regulated activity is appropriate to the client. This means the intermediary must conduct a suitability assessment to ensure that any advice or service provided aligns with the client’s specific financial situation, investment objectives, and risk tolerance.

**Incorrect:** Focusing solely on historical performance without considering the client’s risk profile fails the suitability test, as past performance does not guarantee future results and may not align with the client’s needs. Statutory conduct requirements, such as the duty to act in the client’s best interest and ensure suitability, cannot be bypassed or removed through the use of liability waivers. Furthermore, considering only a single factor like age is insufficient to meet the requirement of having regard to the client’s “particular circumstances,” which is a broader concept encompassing various personal financial factors.

**Takeaway:** The conduct requirements for MPF intermediaries emphasize that all regulated activities must be suitable for the client, necessitating a thorough understanding of the client’s individual circumstances before advice is rendered.

Correct: To ensure the security of funds and maintain a clear audit trail, the Mandatory Provident Fund Schemes Authority (MPFA) guidelines state that employers should make contribution payments directly to the approved trustee or through their designated bank branches and customer service counters. Avoiding the use of cash and bypassing intermediaries for the actual transfer of funds minimizes the risk of misappropriation and ensures that contributions are processed within the statutory timeframe.

**Incorrect:** Handing cash or checks to an MPF intermediary is discouraged because intermediaries are not authorized to collect contribution funds on behalf of the trustee. Furthermore, mandatory contributions must be settled by the contribution day of each month; any delay, regardless of the administrative convenience or the amount involved, will trigger a mandatory contribution surcharge and may lead to financial penalties or criminal prosecution.

**Takeaway:** Employers must utilize direct payment channels to trustees and strictly adhere to contribution deadlines to protect member assets and avoid legal sanctions such as surcharges and penalties.

Correct: Statements I, II, and IV are accurate based on the demographic and social rationale for the implementation of the MPF system. Statement I correctly identifies the projected increase in the elderly population from 12% in 2001 to 36% in 2064. Statement II acknowledges the limitations of traditional family support due to resource constraints and changing social structures. Statement IV correctly identifies the increased economic burden on the working population due to the demographic shift toward a higher dependency ratio.

**Incorrect:** Statement III is incorrect because the MPF system is designed as a privately managed, employment-based mandatory savings scheme. It is not intended to make the government the primary source of retirement funding; rather, it aims to ensure individuals accumulate their own retirement capital during their working lives to reduce the risk of old age poverty and lessen the long-term fiscal pressure on public social welfare systems.

**Takeaway:** Understanding the demographic challenges of an ageing population and the limitations of traditional support systems is essential for explaining why a mandatory, contributory retirement system was implemented in Hong Kong. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: Under the MPF Guidelines, a principal intermediary is required to provide sufficient training to its subsidiary intermediaries to ensure they stay current with developments in the MPF System and upgrade their professional knowledge. Crucially, the principal intermediary must maintain records of this training, including documentary evidence such as certificates of attendance or examination results, for a minimum period of three years.

**Incorrect:** It is inaccurate to claim that the subsidiary intermediary is solely responsible for maintaining training records, as the principal intermediary must keep these for compliance monitoring. The suggestion that records must be kept for five years is incorrect because the specific regulatory requirement for these training records is three years. Furthermore, the obligation to provide training applies to all subsidiary intermediaries to ensure they keep abreast of the system, regardless of their years of experience or registration status.

**Takeaway:** Principal intermediaries must proactively manage the professional development of their subsidiary intermediaries and maintain a robust audit trail of training activities for at least three years to satisfy regulatory compliance requirements.

Correct: Under the Mandatory Provident Fund Schemes (General) Regulation and the Guidelines on Capital Preservation Funds, a Capital Preservation Fund (CPF) is subject to strict fee deduction rules. Management fees and administrative expenses can only be deducted from the fund for a specific month if the investment return of the fund for that month exceeds the prescribed savings rate published by the Mandatory Provident Fund Schemes Authority (MPFA). This rate is typically based on the average interest rates offered by the three note-issuing banks in Hong Kong on savings accounts. If the return is below this rate, the trustee is prohibited from deducting fees for that period, although they may be permitted to recover these fees in subsequent months if the fund outperforms the savings rate later.

**Incorrect:** It is incorrect to suggest that fees are tied to benchmarks like the Hang Seng Index or inflation rates, as the legislative requirement specifically points to the MPFA’s prescribed savings rate. The Compensation Fund is not a mechanism for subsidizing investment performance or covering fee shortfalls; its purpose is to compensate members for losses arising from misfeasance or illegal conduct by trustees or other service providers. Additionally, while many MPF funds have fixed fee structures, the Capital Preservation Fund is unique in that its fee collection is legally contingent upon meeting a minimum performance threshold relative to bank interest rates.

**Takeaway:** To protect the interests of scheme members, the MPF legislation ensures that Capital Preservation Funds only charge fees when the fund’s performance at least matches the prevailing bank savings rate, effectively prioritizing capital preservation over provider compensation during low-yield environments.

Correct: The regulatory oversight of the MPF system is shared between the MPFA and the SFC. The SFC is specifically tasked with authorizing MPF schemes and their constituent funds, vetting the disclosure of information in offering documents and marketing materials, and ensuring that investment managers meet the required qualifications and experience. Meanwhile, the MPFA handles the registration of schemes and focuses on the operational and investment aspects to ensure they comply with the MPF Ordinance.

**Incorrect:** The MPFA does not have the primary responsibility for vetting advertisements or licensing investment managers; these are functions of the SFC. Additionally, all constituent funds within an MPF scheme must be denominated in Hong Kong dollars, not foreign currencies, and must be governed by Hong Kong law. Furthermore, the law requires that all constituent funds within a scheme be made available to every member of that scheme, prohibiting trustees from restricting access based on member demographics or salary levels.

**Takeaway:** A clear division of labor exists where the SFC focuses on product authorization and disclosure standards, while the MPFA focuses on scheme registration and operational compliance. All constituent funds must be accessible to all members and denominated in Hong Kong dollars.

Correct: Statements I, II, and IV are permitted under the MPFA Guidelines on Conduct Requirements for Registered Intermediaries (Guidelines VI.2). Specifically, the restriction on offering incentives does not apply when the benefit takes the form of a discount on fees and charges via bonus units credited to the MPF account (Statement I), a non-monetary benefit associated with an approved membership privilege program (Statement II), or a reduction in the intermediary’s own fees and charges directly payable by the client (Statement IV).

**Incorrect:** Statement III is incorrect because offering a cash gift to an individual, such as a human resources manager, to encourage the transfer of benefits is a direct violation of the conduct requirements. Registered intermediaries are prohibited from offering any rebates, gifts, or incentives (monetary or non-monetary) to any person for the purpose of encouraging a client to transfer benefits, unless they fall under specific exceptions which do not include personal cash gifts to decision-makers.

**Takeaway:** While the MPF regulatory framework generally prohibits incentives to induce scheme transfers or contributions, it allows for specific fee-related discounts and approved non-monetary membership privileges that ultimately benefit the client or the scheme member’s account directly. Therefore, statements I, II and IV are correct.

Correct: Statements I, III, and IV are correct. A registered trust company acting as a custodian must generally maintain a paid-up share capital and net assets of at least $150 million each (though this can be reduced to $50 million under specific conditions). For casual employees in the catering and construction industries, the 60-day employment rule does not apply, meaning they must be enrolled from the first day of employment. Additionally, Industry Schemes are specifically designed to allow workers to move between different employers within the same industry without needing to transfer their accrued benefits, provided both employers use the same scheme.

**Incorrect:** Statement II is incorrect because participation in an Industry Scheme is optional for employers in the catering and construction sectors. While these schemes are tailored for these industries due to high labor mobility, employers are free to enroll their employees in a Master Trust Scheme instead. The regulation provides the Industry Scheme as a specialized option, not a mandatory one for those specific sectors.

**Takeaway:** MPF regulations distinguish between regular and casual employees in specific industries regarding the 60-day rule, and provide specialized scheme structures like Industry Schemes to facilitate portability and administrative efficiency in high-mobility sectors. Therefore, statements I, III and IV are correct.

Correct: Statements I, II, and III accurately reflect the risks and operational characteristics of transferring MPF accrued benefits. The transfer process involves a period where the benefits are not invested (time lag), exposing the member to market fluctuations and the risk of ‘selling low and buying high’. Furthermore, transferring out of a guaranteed fund before meeting specific conditions (such as a minimum investment period) can result in the loss of the guarantee. The ‘forward pricing’ mechanism is the standard for MPF funds, meaning transactions are processed based on the net asset value calculated after the market closes, rather than a price known at the time of the instruction.

**Incorrect:** Statement IV is incorrect because, under the Mandatory Provident Fund Schemes (General) Regulation, the original (transferor) trustee must take all practicable steps to ensure that the accrued benefits are transferred within 30 days, not 60 days, after being notified of the transfer election or the last contribution day, whichever is later.

**Takeaway:** When electing to transfer MPF benefits, members must consider the ‘out-of-market’ risk and potential loss of guarantees, while being mindful that trustees are subject to a 30-day statutory timeframe for completing such transfers. Therefore, statements I, II and III are correct.

Correct: Statement II is correct as the MPFA Guidelines require the post-sale call to be audio recorded and conducted within a timeframe of seven working days. Statement IV is correct because the Guidelines specify that if a client cannot be reached via telephone after several attempts, the principal intermediary must instead send a written document to the client to confirm the fund choice, the risk mismatch, and that the decision was made by the client.

**Incorrect:** Statement I is incorrect because the post-sale call must be conducted by an authorized person of the principal intermediary who is NOT the subsidiary intermediary who performed the regulated activity, ensuring a degree of independence in the confirmation process. Statement III is incorrect because the Guidelines explicitly state that the processing of the client’s instruction does not need to wait for the completion of the post-sale call process.

**Takeaway:** For MPF transactions involving a risk mismatch, the post-sale call serves as a mandatory disclosure and confirmation tool that must be handled by an independent authorized person within seven working days, though it does not stall the administrative processing of the client’s request. Therefore, statements II and IV are correct.

Correct: Statements I, II, and IV are accurate. According to the Mandatory Provident Fund Schemes (General) Regulation, every constituent fund must maintain an effective currency exposure to Hong Kong dollars of at least 30% of its net asset value. This ‘effective’ measure specifically includes the underlying currency positions of physical assets as well as the impact of financial derivative instruments, such as currency forwards or swaps, used for hedging or investment purposes. Hong Kong dollar-denominated assets, such as equities listed on the local exchange or cash deposits in HKD, contribute toward this limit.

**Incorrect:** Statement III is incorrect because the 30% Hong Kong dollar currency exposure requirement is mandatory for each individual constituent fund. It is not sufficient for the MPF scheme to meet this requirement on an aggregate or average basis across all its funds; every fund within the scheme must independently comply with the 30% threshold to ensure localized currency protection for all members regardless of their fund choice.

**Takeaway:** To mitigate currency risk for members, the MPF framework requires each constituent fund to maintain a minimum 30% effective exposure to the Hong Kong dollar, factoring in both physical holdings and the effects of derivatives. Therefore, statements I, II and IV are correct.

Correct: Statements I and II are accurate. According to the Mandatory Provident Fund Schemes (Exemption) Regulation, the “minimum MPF benefits” (MMB) of a new member in an MPF exempted ORSO registered scheme are subject to strict preservation and portability rules. Specifically, a trustee is prohibited from forfeiting a member’s MMB even if the member is dismissed for cause (serious misconduct). Additionally, upon a change of employment, the MMB must generally be transferred to an MPF scheme to ensure the benefits remain within the MPF system.

**Incorrect:** Statement III is incorrect because the “minimum MPF benefits” are defined as the lesser of the accrued benefits or the formula-based amount (1.2 x final average monthly relevant income x years of post-MPF service), not the greater. Statement IV is incorrect because the MPFA has exempted the appointment of a Registered Trust Company (RTC) from the prior approval requirement. For an RTC, the employer only needs to notify the MPFA in writing within one month after the appointment, whereas prior approval is only required if the appointee is not an RTC.

**Takeaway:** New members of MPF Exempted ORSO schemes are protected by MMB requirements that mirror MPF preservation standards, and employers must distinguish between notification and prior approval requirements based on the status of the trustee being appointed. Therefore, statements I and II are correct.

Correct: The Net Asset Value (NAV) per unit is calculated by taking the total market value of all underlying investments plus any cash holdings, then subtracting all accrued liabilities such as administrative and management fees. This net amount represents the total value of the fund’s assets belonging to the unit holders, which is then divided by the total number of units currently issued to determine the value of a single unit.

**Incorrect:** Including only the market value of investments while ignoring cash holdings would result in an undervalued NAV. Similarly, failing to deduct accrued expenses would artificially inflate the NAV per unit, as these fees represent obligations the fund must pay. Using the number of scheme members as the divisor is incorrect because the calculation must be based on the total units held, as different members hold different quantities of units.

**Takeaway:** The standard formula for NAV per unit requires subtracting all accrued management and administrative expenses from the sum of the market value of investments and cash, then dividing by the total number of units issued.

Correct: Statements I, II, and III accurately reflect the regulatory framework for MPF exempted ORSO schemes. Successor schemes are a notable exception to the 3 May 2000 application deadline, provided they arise from genuine business transactions like restructuring. Employees who joined on or before 1 December 2000 are classified as “existing members,” meaning they are not bound by the “minimum MPF benefits” (MMB) preservation and portability requirements that apply to new members. Additionally, ORSO schemes maintain the flexibility to be either defined contribution (DC) or defined benefit (DB), whereas the MPF system is strictly limited to DC structures.

**Incorrect:** Statement IV is incorrect because it confuses MPF vesting rules with ORSO rules. In an MPF scheme, 100% of the employer’s mandatory contributions must vest immediately. However, in an MPF exempted ORSO scheme, the vesting of the employer’s contributions is governed by the specific rules of that scheme, which typically involve a graduated vesting scale based on the employee’s years of service.

**Takeaway:** While MPF exempted ORSO schemes must meet certain standards to maintain their exempt status, they retain distinct features such as the ability to offer defined benefit structures and customized vesting schedules that differ from the mandatory 100% immediate vesting required by the MPF system. Therefore, statements I, II and III are correct.

Correct: Statements I, II, and III are accurate according to the Mandatory Provident Fund Schemes Ordinance. Relevant income is broadly defined to include almost all monetary payments such as bonuses and allowances, while specifically excluding statutory severance or long service payments. For regular employees, the permitted period for enrollment is 60 days, and statutory provisions allow for the extension of this deadline if it falls on a Saturday, public holiday, or during extreme weather conditions (gale or black rainstorm warnings).

**Incorrect:** Statement IV is incorrect because it fails to account for the “contribution holiday” granted to employees. Under the MPF system, a regular employee is not required to make contributions for any wage period commencing on or before the 30th day of employment. While the employer must contribute from the first day of employment, the employee’s obligation only begins after this initial period.

**Takeaway:** Understanding the distinction between employer and employee contribution start dates is vital; while employers contribute from day one, employees benefit from a 30-day contribution holiday, and all administrative deadlines are subject to extensions for holidays and severe weather. Therefore, statements I, II and III are correct.

Correct: Commissions, whether based on the amount or number of transactions, are explicitly classified as relevant income under the Mandatory Provident Fund Schemes Ordinance. Additionally, while most car-related benefits like fuel or maintenance are non-monetary and excluded, cash payments made by an employer to cover an employee’s car registration and license fees for a vehicle owned by the employee are considered relevant income because they constitute a direct cash benefit provided for the employee’s advantage.

**Incorrect:** Severance payments and long service payments are specifically excluded from the definition of relevant income by legislation. Non-monetary benefits, such as holiday tour packages, meal vouchers, and the granting or realization of share options, do not constitute relevant income. Furthermore, payments in lieu of notice are excluded because they do not fall within the specific categories (such as wages, salary, or commission) that define relevant income, and marriage gifts are viewed as payments for personal milestones rather than employment-related earnings.

**Takeaway:** To determine relevant income for MPF purposes, one must distinguish between monetary employment rewards (like commissions and specific cash subsidies) and excluded items such as non-monetary benefits, statutory termination payments, and discretionary gifts for personal events.

Correct: In the Mandatory Provident Fund (MPF) system, all mandatory contributions—whether made by the employer or the employee—vest fully and immediately in the employee as accrued benefits once they are paid to the approved trustee. This immediate vesting also extends to any investment income or profits derived from those mandatory contributions. While employee voluntary contributions also vest immediately, the vesting of voluntary contributions made by an employer is not immediate by law; instead, it is governed by the specific rules set out in the individual MPF scheme’s governing documents, which often include a vesting scale based on years of service.

**Incorrect:** The suggestion that employer mandatory contributions require a minimum period of service, such as two years, is incorrect because the MPF Ordinance mandates immediate vesting for all mandatory portions. It is also inaccurate to claim that investment returns are subject to a different vesting schedule than the principal mandatory contributions, as both are treated the same regarding ownership rights. Furthermore, the law does not mandate immediate vesting for employer voluntary contributions; these are specifically left to the discretion of the scheme’s governing rules, unlike mandatory contributions.

**Takeaway:** Mandatory contributions and their associated investment returns are always 100% vested in the member immediately, but the vesting of employer-funded voluntary contributions depends entirely on the specific governing rules of the chosen MPF scheme.