LegCo Sub-Committee on MPF System
Information Note
Duties of Trustees


This paper describes the various duties that an approved trustee must comply with in the administration, management and maintenance of a registered scheme. These duties can be divided in two categories -

  1. statutory duties of trustees which are specific duties of trustees prescribed in the MPF Ordinance, regulations and rules; and
  2. fiduciary duties of trustees which are general standards of conduct of trustees to be implied in the governing rules of registered schemes.


Statutory Duties

2. We propose that an approved trustee must comply with the following statutory duties -

  1. the duty to collect or receive statutory minimum contributions;
  2. the duty to exercise sufficient and adequate control over the investments of accrued benefits;
  3. the duty to make arrangements for receiving and dealing expeditiously with inquiries and complaints by scheme members;
  4. the duty to keep and retain records in respect of scheme members;
  5. the duty to submit to the MPF Authority, annually or at other intervals, accounts, statements, documents or other information as may be required by the MPF Authority;
  6. the duty to report events of a significant nature to the MPF Authority;
  7. the duty to keep accounting records which record and explain the transactions and financial position of a registered scheme at a current date;
  8. the duty to prepare at regular intervals a balance sheet and statement of account;
  9. the duty not to pay or otherwise dispose of any part of the accrued benefits to any scheme member or any other person otherwise than in accordance with the provisions of the MPF Ordinance and governing rules;
  10. the duty to expeditiously transfer accrued benefits to, from and between registered schemes where an employee changes or ceases employment;
  11. the duty to pay a scheme member who has attained retirement age or who is otherwise entitled to receive in accordance with the MPF Ordinance the entirety of his accrued benefits;
  12. the duty to pay the personal representatives of a deceased scheme member or such other person as may be authorised to receive the entirety of the deceased scheme member’s accrued benefits;
  13. the duty to pay levies to the MPF Authority for the purpose of the compensation fund established under the MPF Ordinance;
  14. the duty to ensure that the standards specified in the MPF regulations are complied with at all times in relation to the registered scheme administered, managed and maintained by him;
  15. the duty not to undertake any investment practice which may be specified as a forbidden investment practice by the MPF Authority;
  16. the duty to comply with such limitations or prohibitions in respect of the investment of the assets of a registered scheme in any specified restricted investments;
  17. the duty to cause to be prepared by an auditor a report into those circumstances which may prejudice the interest of any scheme member when notified by the MPF Authority and to supply such report to the MPF Authority within such period as may be specified;
  18. the duty to give to the MPF Authority within such period as may be specified any information or document in the approved trustee’s possession or under his control as may be specified;
  19. the duty to produce documents and records to an inspector appointed by the MPF Authority, to give all reasonable assistance to the inspector in connection with the investigation, and to appear and answer questions put by the inspector;
  20. the duty to properly discharge all liabilities of a registered scheme and wind up the registered scheme in an orderly manner;
  21. the duty to see to the orderly termination of his office, in case of resignation of the trustee;
  22. the duty to ensure that scheme assets are properly segregated from other assets, are applied only for the purposes of the registered scheme, and are not subject to any encumbrance other than as authorized in the rules; and
  23. the duty to prudently appoint and monitor investment managers and other service providers, in accordance with terms and conditions set out in regulations, rules and guidelines.

Fiduciary Duties

3. We propose that the following fiduciary duties should be implied covenants of governing rules to be complied with by approved trustees -

(a) Duties of Prudence
duty of care, skill, diligence and prudence reasonably to be expected of a person familiar with the administration, management, and maintenance of a registered scheme in the prevailing circumstances;

(b) Duty of Diversification
duty to diversify investments of scheme assets so as to minimise the risk of large losses, unless under the prevailing circumstances it is clearly prudent not to do so;

(c) Duty of Loyalty
duty to act in the interests of the beneficiaries of the registered scheme and not in his own interest; and

(d) Duty of Compliance
duty to act in accordance with the express and implicit terms of the governing rules of the registered scheme.

4. Where the governing rules of a scheme do not contain covenants by the trustees to the same effect as these implied covenants, the governing rules shall apply as if the implied covenants were expressly contained therein. Any provisions in the governing rules contrary to these implied covenant shall be void and of no effect.

5. We propose that an interpretative statement be included following the list of fiduciary duties to the effect that -

"The above list of fiduciary duties shall not be construed as an exhaustive list of the trustee’s fiduciary duties. The above fiduciary duties and the fiduciary duties of trustees found under the common law of Hong Kong shall apply to approved trustees to the extent that such fiduciary duties are consistent with the Ordinance and the rules and regulations adopted thereunder".

Delegation to Service Providers

6. We propose that the following statement also form part of the implied covenants of governing rules -

"In the discharge of his duties with respect to the administration, management, and maintenance of a registered scheme, an approved trustee may as he reasonably deems prudent -

  1. consult with or retain a third person to advise him; or
  2. delegate to a service provider all or part of his powers.

Provided that no consultation or delegation under this section shall relieve the trustee of his fiduciary duties to prudently select and supervise his advisers and service providers, or otherwise satisfy the above listed fiduciary duties and the fiduciary duties of trustees found under the common law of Hong Kong to the extent that such fiduciary duties are consistent with the Ordinance and the rules and regulations adopted thereunder".


Statutory Duties Vs. Fiduciary Duties

7. The purpose of specifying statutory duties, which are of administrative nature, is to ensure the proper administration of the schemes by the trustees and for the better and more effectual carrying out of the provisions and objectives of the MPF system. Fiduciary duties, on the other hand, are the bedrock obligations of the trustee which promote the protection of scheme assets and prevent misuse and mismanagement on the part of the trustee.

8. The list of specific statutory duties in paragraph 2 is not exhaustive but gives an indication of the administrative responsibilities of the approved trustee relating to the administration, management and maintenance of registered schemes. Depending on the circumstances of the breach, a breach of statutory duties may result in the removal or suspension of the approved trustee, the revocation of a trustee’s approval, prosecution as an offence, or levy by the MPF Authority of financial penalties.

9. The list of four basic fiduciary duties in paragraph 3 is not exhaustive. It is a list intended to illustrate the main categories of fiduciary duties of trustees existing at common law which are to be imported into the MPF system. In order to avoid ambiguity, it is important to specify that the common law will apply to approved trustees. Without such clear interpretative statement, one could question whether the common law of trust has been superseded by the MPF Ordinance and its subsidiary legislation. Inclusion of the fiduciary duties as implied covenants of the governing rules will impose on the trustee obligations which can not be superseded, limited or diluted by express covenants in the governing rules.

10. The import of the common law, subject to such import being consistent with statutory provisions, has precedent in Hong Kong (e.g. the Sale of Goods Ordinance (Cap. 26) provides that the rules of the common law are imported to the same Ordinance "save in so far as they are inconsistent with the express provision of the Ordinance ...", see Annex 1). Similarly, there are international precedents for the consistent import of the common law of trusts into pension legislation (see Annex 2).

11. Depending on the circumstances of the breach, a breach of a fiduciary duty may result in sanctions being imposed on the trustee by the MPF Authority (same as per paragraph 6). In addition, given that fiduciary duties will be implied covenants of the governing rules setting out the obligations owed by the approved trustee to scheme members, a breach of a fiduciary duty may also result in a claim in damages by scheme members.

Statutory Duties

12. To specify the statutory duties in regulations and rules, for example, the duty to collect statutory minimum contributions, to control investments, to deal with scheme member inquiries, to maintain scheme member records, to keep accounting records and to prepare financial statements, etc., will contribute towards making sure that each MPF scheme is serviced in a proper manner. Similarly, the duty to submit documents or information and to report events of a significant nature to the MPF Authority are included in order to provide for the more effective monitoring of approved trustees.

Fiduciary Duties

13. The type of implied covenants that we proposed in paragraph 3 are well-established fiduciary duties or standards which apply to trustees at common law.

14. Fiduciary duties exist at common law whenever a fiduciary relationship (such as a trust relationship) exists. The content of fiduciary duties under common law has been developed by the courts over more than six centuries. We propose a list of four basic categories of fiduciary duties which are listed in U.S. pension legislation and which are relevant to the administration, management and maintenance of registered schemes: (a) the duty of prudence, (b) the duty to diversify investments of scheme assets, (c) the duty of loyalty, and (d) the duty of compliance with governing rules.

Duty of Prudence

15. The duty of prudence proposed in paragraph 3(a) is based on the so-called "prudent man rule", which requires a trustee "to exercise sound discretion and to observe how men of prudence, discretion and intelligence manage their own affairs". This prudent man rule has been modified over the years by the courts. The pension legislation of many jurisdictions (including the U.S., Canada, the U.K., and Australia, see Annex 3) has also adopted modified versions of the prudent man rule similar to the language proposed in paragraph 3(a).

16. Compliance with one’s duty of prudence is a question of fact: Has the trustee acted like a prudent approved trustee in the circumstances? The MPF Ordinance and subsidiary legislation will prescribe both generally and specifically how a trustee must comply with his statutory duties. Compliance with fiduciary duties at common law is usually assessed in terms of what the trustee has done compared to what can reasonably be expected of a competent trustee in the circumstances.

Duty of Diversification

17. The duty to diversify investments of scheme assets proposed under paragraph 3(b) minimises the risk of large losses of the scheme assets. The extent of this duty is also a question of fact: Has the trustee diversified the scheme’s investments to a reasonable extent given the size of its investments, the economic market conditions, the type of investments made, the geographic dispersion of its investments, the investment distribution by industry/sector and the purposes of the scheme.

Duty of Loyalty

18. The duty of loyalty proposed in paragraph 3(c) is fundamental to any fiduciary relationship and regroups a myriad of sub-categories of fiduciary duties (e.g. the duty to avoid conflicts of interests, the duty to inform and account to beneficiaries, the duty of confidentiality).

Duty of Compliance

19. The duty of compliance with the terms of the trust instrument of paragraph 3(d) is self-evident: The trustee has an overarching duty not to breach the "trust" (or confidence) assigned to him and to carry out the intention expressed in the instrument governing the trust.

Delegation to Service Providers

20. The purpose of this provision is to make clear that a trustee may prudently seek the expertise and assistance of others in the discharge of his duties, but that such consultation and delegation will not relieve the trustee of his responsibilities to exercise prudence in the hiring and supervision of his advisers and service providers.

Mandatory Provident Fund Office
Financial Services Branch
14 November 1996
[Ref: Paper/MPF/SC-3]

Annex 1

Sales of Goods Ordinance (Cap. 26)

62. Saving

(2) The rules of the common law, including the law merchant, save in so far as they are inconsistent with the express provisions of this Ordinance, and in particular the rules relating to the law of principal and agent, and the effect of fraud, misrepresentation, duress or coercion, mistake, or other invalidating cause, shall continue to apply to contracts for the sale of goods.

Annex 2

Jurisdiction -- Pension legislation

Duty of Prudence

The Prudent Man Rule -- under Harvard College v. Amory, 26 Mass. (9 Pick.) 446 (1830)

- duty to exercise sound discretion and to observe how men of prudence, discretion and intelligence manage their own affairs.

US -- under ERISA

- duty to act "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims ..."

CANADA -- under the Pension Benefit Act (Ontario)

- duty to "exercise care, diligence and skill in the administration and investment of the pension fund that a person of ordinary prudence would exercise in dealing with the property of another person"

UK -- Pension Act 1995

- duty to "take care and exercise skill in the performance of any investment functions"

AUSTRALIA -- Superannuation Industry (Supervision) Act 1993

- duty to "exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide"

Annex 3


Import of fiduciary duties at common law if consistent with pension legislation


Yes, under ERISA


Yes, see Cowan v. Scargill (1984) 2 All E.R. 750, at p. 763:

"I see no reason for holding that different principles apply to pension fund trusts from those which apply to other trusts. Of course, there are many provisions in pension schemes which are not to be found in private trusts, and to these the general law of trusts will be subordinate"


Yes, interpretation in Cowan v. Scargill accepted by Canadian courts

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