Mandatory Provident Fund Schemes Examination Set Two

The Mandatory Provident Fund (MPF) system in Hong Kong has specific guidelines regarding who is covered. Domestic employees are generally excluded if their services are rendered at the employer’s household. Employees entering Hong Kong under an employment visa with permission to stay for a period not exceeding 13 months are initially excluded, but become included if their stay extends beyond this period. Self-employed individuals, such as farmers and fishermen, are generally covered unless they are employed by another farmer or fisherman. Therefore, statements I and II are correct.

ORSO schemes offer flexibility in their structure and benefits, contrasting with the mandatory nature of MPF schemes. MPF exempted ORSO schemes must meet specific criteria to be exempt from MPF requirements. Defined contribution schemes have contribution rates defined for both employer and employee, while defined benefit schemes’ contribution rates are determined by actuarial valuations. Therefore, statements I and II are correct.

The Fund Fact Sheet is a half-yearly report card for an MPF fund, offering key summary information such as fund size, investment objectives, portfolio allocation, main holdings, performance, expense ratio, risk indicator, and future outlook. Guaranteed funds promise either capital or a specified return, with the guarantee mechanism clearly stated in marketing documents. A hard guarantee ensures a minimum net return without conditions, while a soft guarantee promises a minimum return subject to certain conditions. Index-tracking funds aim to replicate a specific market index. Therefore, statements I and II are correct.

When a new eligible employee opts to join an MPF-exempted ORSO registered scheme, their ‘minimum MPF benefits’ are subject to preservation, portability, and withdrawal requirements, meaning these benefits cannot be accessed until age 65, early retirement (age 60), permanent departure from Hong Kong, total incapacity, terminal illness, or death. Upon changing employment, these benefits must be transferred to an MPF scheme, subject to statutory exceptions. Employers must also display the exemption certificate conspicuously and provide a copy to each member. Furthermore, employers must provide new eligible employees the option to choose between the ORSO scheme and an MPF scheme. Therefore, statements I, II and III are correct.

Registered intermediaries must act honestly, fairly, and in the best interests of their clients, while also maintaining integrity. This includes providing accurate representations in all communications, including advertising and marketing materials. Registered intermediaries should avoid offering rebates, gifts, or incentives that could compromise their objectivity or influence their advice. Maintaining the confidentiality of client information is crucial, and intermediaries should assist regulators when required. Handling client complaints effectively and fairly is also an essential aspect of acting with integrity. Therefore, all of the above statements are correct.

According to MPFA guidelines, a principal intermediary is obligated to ensure that advertisements and marketing materials it issues are not false, misleading, or deceptive. These materials should present a balanced view of registered schemes and constituent funds, including adequate risk disclosures, ensuring clients receive fair and clear information. This aligns with acting honestly, fairly, and in the best interests of the client, as required by the MPFSO. Subsidiary intermediaries are only allowed to distribute marketing materials approved by their principal intermediary.

According to sections 34ZL and 34ZM of Part IVA of the MPFSO, when carrying on a regulated activity, a principal intermediary or a subsidiary intermediary attached to a principal intermediary must act honestly, fairly, in the best interests of the client, and with integrity. They must exercise a level of care, skill, and diligence that may reasonably be expected of a prudent person carrying on the regulated activity. Intermediaries should only advise on matters they are competent to advise on and must consider the client’s particular circumstances to ensure the regulated activity is appropriate for them. Disclosure of information to the client is necessary for the client to be sufficiently informed for making any material decision. Intermediaries must use their best endeavors to avoid conflicts of interest and disclose any such conflicts to the client. Client assets must be promptly and properly accounted for, and intermediaries must comply with other prescribed requirements. Therefore, all of the above statements are correct.

When an existing member of an ORSO registered scheme chooses to join an MPF scheme, their accrued benefits in the ORSO scheme are typically handled in a specific manner. The member usually has the option to transfer the benefits to an MPF scheme, purchase an annuity, or take a deferred pension. This ensures that the member’s retirement savings continue to be managed under a regulated framework. The transfer must comply with the relevant regulations and guidelines set forth by the MPFA. Therefore, the most suitable action is to transfer the accrued benefits to an MPF scheme.

According to the Mandatory Provident Fund Schemes Ordinance, ‘relevant income’ includes commissions based on the amount or number of transactions, as well as tips collected by the employer and distributed to employees. Car subsidies in the form of cash payments for car registration and license fees are also considered relevant income. However, tips not collected by the employer, marriage gifts, holiday tour packages, and severance payments are specifically excluded from the definition of relevant income. Therefore, only the commission based on the amount of transaction is considered relevant income for MPF contributions.

According to sections 34ZL and 34ZM of Part IVA of the MPFSO, a registered intermediary, when carrying on a regulated activity, is required to act honestly, fairly, in the best interests of the client, and with integrity. They must exercise a level of care, skill, and diligence that may reasonably be expected of a prudent person carrying on the regulated activity. The intermediary should only advise on matters within their competence, consider the client’s circumstances to ensure the activity is appropriate, disclose necessary information for informed decision-making, avoid conflicts of interest or disclose them, properly account for client assets, and comply with other prescribed rules. Principal intermediaries must also maintain records of their activities and those of their subsidiary intermediaries to enable the frontline regulator to ascertain compliance with these requirements and establish proper controls and procedures for securing compliance by themselves and their subsidiary intermediaries. Therefore, acting honestly, fairly, and with integrity is a statutory requirement for registered intermediaries under the MPFSO.

According to the MPFSO, a principal intermediary is permitted to conduct regulated activities as part of their business operations. This includes providing advice and services related to MPF schemes. The prohibitions outlined in the MPFSO primarily target individuals or entities attempting to engage in regulated activities without proper authorization or registration. Subsidiary intermediaries can also conduct regulated activities when acting on behalf of their principal intermediary. Therefore, offering MPF advice as part of a registered intermediary’s business is a permissible activity under the MPFSO.

According to the MPFSO, the date of payment for MPF contributions depends on the payment method used. When an employer chooses to settle future contributions by deducting from the reserve in their MPF account, the contribution is considered paid on the date the employer’s remittance statement is received by the trustee. It is crucial that sufficient funds are available in the employer’s MPF account for offsetting. If there aren’t enough funds, the employer must cover the difference on or before the contribution day to avoid penalties under the MPFSO.

The World Bank’s five-pillar framework is a model for constructing comprehensive retirement income systems. Pillar One typically refers to a non-contributory, publicly-financed, and managed system, often designed to provide a minimum level of support. Pillar Two represents a mandatory, privately-managed, fully-funded contribution system like the MPF in Hong Kong. Pillar Three involves voluntary savings, such as personal savings and insurance products. Pillar Four includes informal support and other social programs. The MPF system is designed to be employment-based, defined contribution, and privately managed. Therefore, statements II and III are correct.

Registered intermediaries must act honestly, fairly, and with integrity, always prioritizing the client’s best interests. This includes providing accurate representations in all advertising and marketing materials and avoiding any actions that could compromise client confidentiality. They must also handle client complaints effectively and assist regulators when required. Therefore, all of the above statements are correct.

Employers in Hong Kong have several key obligations under the Mandatory Provident Fund Schemes Ordinance (MPFSO). These include enrolling eligible employees in an MPF scheme within the prescribed timeframe. They must also make timely and accurate contributions to the scheme for both themselves and their employees. Furthermore, employers are required to inform trustees of any changes in employee information that may affect their MPF accounts. Failing to comply with these obligations can result in penalties. Trustees also have duties to ensure compliance and report irregularities. Therefore, statements I and II are correct.

A Responsible Officer in a principal intermediary plays a crucial role in ensuring compliance with Part IVA of the MPFSO. This involves establishing and maintaining proper controls and procedures. Ensuring that the principal intermediary and its subsidiary intermediaries adhere to the MPFSO requirements is a key responsibility. The Responsible Officer must actively oversee and enforce these controls to maintain regulatory compliance and protect the interests of scheme members. Therefore, all of the above statements are correct.

Under the MPFSO, providing false or misleading information with intent to defraud during an MPFA inspection or investigation carries significant penalties. Specifically, if convicted on indictment, the individual may face a substantial fine and a term of imprisonment. This provision aims to ensure the integrity of the MPF system and deter fraudulent activities that could undermine its effectiveness. The penalties reflect the seriousness with which such offences are viewed, emphasizing the importance of transparency and honesty in dealings with the MPFA. This is crucial for maintaining public trust and confidence in the MPF scheme.

ORSO schemes can indeed be categorized by the types of benefits they offer, such as defined benefit or defined contribution schemes. They are also classified based on whether they are registered or exempted under the ORSO scheme. Furthermore, a critical distinction is whether an ORSO scheme is exempted from the MPF system, which determines whether employees are required to participate in the MPF system or can remain solely within the ORSO scheme. Therefore, all of the above statements are correct.

According to the guidelines set by the Mandatory Provident Fund Schemes Authority (MPFA) for registered intermediaries, when dealing with clients, certain disclosures are essential. These disclosures aim to ensure transparency and enable clients to make informed decisions regarding their MPF investments.

Registered intermediaries must inform clients about their affiliation with key parties involved in the operation or distribution of the registered scheme, such as the approved trustee, investment manager, or custodian. This disclosure helps clients understand any potential conflicts of interest.

The intermediary should clarify the types of regulated activities they are conducting, such as making invitations, inducements, or providing regulated advice, and any relevant conditions that apply to their registration as a subsidiary intermediary. This ensures clients are aware of the scope of services being offered.

It is important to note that while discussing past investment performance, intermediaries should avoid basing recommendations primarily on this factor. If past performance is discussed, it should be clarified that past performance is not necessarily indicative of future results. Comparisons of fund performance should be made carefully, comparing funds of the same type over a long term, considering risk levels and investment strategies, and using net performance figures.

Registered intermediaries must provide clients with information materials to help them understand the promoted registered scheme and constituent funds. This includes explaining the key features of the scheme, such as fees and charges, fund choices, and services offered by the trustee. For constituent funds, the explanation should cover investment policies, risk levels, fees, and relevant terms and conditions. If the scheme includes a guaranteed fund, the intermediary must explain the guarantee features, the guarantor, associated risks, the guarantee period, the cost of the guarantee, and any conditions that may affect the guarantee’s scope or validity.

When inviting or advising a client to join or transfer to a registered scheme, the intermediary must inform the client that if no constituent fund is selected, the contribution will be invested in the default fund. The key features of the default fund, including its investment policy, risk level, fees, and terms and conditions, should be explained.

This information ensures that clients have a comprehensive understanding of the registered scheme and can make informed decisions.

When an employee is newly hired (other than a casual employee) and paid monthly, the employer’s mandatory contribution (ERMC) starts from the first day of employment. However, the employee’s mandatory contribution (EEMC) begins on the first day of the month following the 60th day of employment. The enrolment must be done by the employer before the deadline. The deadline for the first ERMC payment is the 10th of the month following the contribution period. The deadline for the second ERMC and first EEMC payment is also the 10th of the month following the contribution period.

In Scenario I, the employee’s 60th day of employment falls on October 31, 2015. Therefore, the EEMC commences on November 1, 2015. The deadline for enrolment is November 2, 2015. The first ERMC payment covers the period from September 2, 2015, to October 31, 2015, and is due on November 10, 2015. The second ERMC and first EEMC payment cover the period from November 1, 2015, to November 30, 2015, and are due on December 10, 2015.

In Scenario II, the payroll runs from the 15th of the month to the 14th of the following month. The ERMC still commences on September 2, 2015, but the EEMC starts on October 15, 2015. The deadline for the first ERMC payment is November 10, 2015, covering September 2, 2015 – September 14, 2015, and September 15, 2015 – October 14, 2015. The second ERMC and first EEMC payment are due on December 10, 2015, covering October 15, 2015 – November 14, 2015.

Therefore, all of the above statements are correct.

Under the Mandatory Provident Fund (MPF) System in Hong Kong, a trustee holds a significant responsibility. The trustee is entrusted with the assets of the MPF scheme and must act in the best interests of the beneficiaries, as stipulated in the trust deed. This includes managing the fund with diligence, ensuring proper investment, and adhering to all relevant laws and regulations. If a trustee fails to meet these obligations and causes a loss to the trust property, they are liable for a breach of trust and must restore the property or provide compensation to the beneficiaries. This liability cannot be indemnified by the assets of the MPF scheme itself. The MPF Schemes Ordinance and its associated regulations outline these duties and liabilities to protect the interests of scheme members. Therefore, the trustee must bear the cost of restoring any loss caused by their breach of trust.

The Mandatory Provident Fund (MPF) system in Hong Kong mandates contributions based on ‘relevant income.’ This includes wages, salaries, bonuses (both discretionary and performance-linked), end-of-contract gratuities, and cash allowances. Reimbursements for expenses incurred by the employee for employment-related goods and services necessary for performing their duties are generally not considered ‘relevant income.’ This distinction is crucial for determining the contribution base for both employers and employees under the MPF scheme, as outlined in the MPF legislation and guidelines. Therefore, statements I and II are correct.

The MPFA issues guidelines covering various aspects of MPF scheme operations, including the interface between MPF and ORSO schemes, and the regulation of MPF intermediaries. These guidelines aim to ensure the proper functioning and oversight of MPF schemes and related activities. Tax deductions for MPF contributions are governed by tax laws and regulations, but are not specifically covered in the MPFA guidelines mentioned in the context. Therefore, statements I, II, and III are correct. Therefore, statements I, II and III are correct.

The MPFA’s Guidelines on Conduct Requirements for Registered Intermediaries offer direction on the minimum expected conduct standards for regulated individuals involved in sales, marketing, and advice related to registered schemes. These guidelines are used to assess compliance with performance requirements under sections 34ZL and 34ZM of the MPFSO, but they are not exhaustive. Industry regulators also use these guidelines for supervision and investigation. The guidelines do not override any laws and are complementary to other regulatory provisions. A ‘registered intermediary’ includes a responsible officer. Therefore, statements I and II are correct.

Registered intermediaries and responsible officers are expected to adhere to minimum standards of conduct as stipulated in the MPFSO. This includes acting honestly, fairly, and in the best interests of scheme members, providing suitable advice, and disclosing relevant information. Failing to meet these standards can result in disciplinary actions.

The Fund Fact Sheet is a half-yearly report card for an MPF fund, providing key summary information such as fund size, investment objectives, portfolio allocation, main holdings, performance, expense ratio, risk indicator, and future outlook. Guaranteed funds promise either a capital guarantee or a specified rate of return, with the guarantee mechanism clearly stated in marketing documents. A ‘hard guarantee’ provides a minimum net return without conditions, while a ‘soft guarantee’ promises a return subject to specific conditions. Therefore, statements I and II are correct.

According to the MPFSO, if a person carries on regulated activities for another person in the course of acting as an employee, agent, or representative of that other person, or for holding themselves out as so carrying on regulated activities, they are liable on conviction on indictment to a fine of $1,000,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $20,000 for each day on which the offence is continued; or on summary conviction to a fine at $100,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $2,000 for each day on which the offence is continued. Also, a person who, without reasonable excuse, contravenes the prohibition by taking/using the title of principal intermediary or subsidiary intermediary or certain related titles, commits an offence and is liable on conviction to a fine at $100,000 and, in the case of a continuing offence, to a further fine of $2,000 for each day on which the offence is continued. Therefore, statements I and II are correct.

According to section 34ZL of the MPFSO, when carrying out a regulated activity, a registered intermediary is required to act honestly, fairly, in the best interests of the client, and with integrity. This encompasses a broad commitment to ethical and responsible conduct in all dealings with clients. While competence, disclosure, and conflict of interest management are also crucial aspects of a registered intermediary’s responsibilities, the overarching principle is to act with honesty, fairness, integrity, and in the client’s best interest.

The Mandatory Provident Fund Schemes Ordinance empowers the MPFA to regulate various aspects of MPF schemes. This includes exempting certain individuals from contributing, approving and regulating MPF scheme trustees, overseeing sales and marketing activities related to MPF schemes, and making necessary amendments to other relevant ordinances. The MPFA also issues codes and guidelines to facilitate compliance with the legislation by service providers and scheme participants. Therefore, all of the above statements are correct.

Employers in Hong Kong have specific responsibilities under the Mandatory Provident Fund Schemes Ordinance (MPFSO). They must enroll eligible employees in an MPF scheme within the prescribed timeframe. Contributions must be remitted to the trustee according to the stipulated schedules. Failure to comply with these obligations can result in penalties. The MPFSO aims to ensure employees have retirement savings, and employers play a crucial role in this system.