LegCo Paper No. CB(1) 562/96-97
(These minutes have been seen
by the Administration)
Ref : CB1/PL/FA/1

LegCo Panel on Financial Affairs

Minutes of Meeting held on Monday, 4 November 1996 at 8:30 a.m. in Conference Room A of the Legislative Council Building

Members present :
    Dr Hon HUANG Chen-ya, MBE (Chairman)
    Hon Martin LEE, QC, JP
    Hon Ronald ARCULLI, OBE, JP
    Hon CHIM Pui-chung
    Hon Andrew CHENG Kar-foo
    Hon Ambrose LAU Hon-chuen, JP
    Dr Hon LAW Cheung-kwok
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai
    Hon Mrs Elizabeth WONG, CBE, ISO, JP
Members absent :
    Hon Eric LI Ka-cheung, OBE, JP (Deputy Chairman)
    Hon David K P LI, OBE, LLD (Cantab), JP
    Hon James TO Kun-sun
    Dr Hon Philip WONG Yu-hong
    Hon Paul CHENG Ming-fun
Members attending :
    Hon Fred LI Wah-ming
    Hon Howard YOUNG, JP
    Hon LEE Cheuk-yan
    Hon CHAN Kam-lam
    Hon CHAN Yuen-han
    Hon LAW Chi-kwong
Public officers attending:
Item IV
    Mrs Pamela TAN, JP
    Director, Mandatory Provident Fund Office
    Mr J Allen
    Deputy Crown Solicitor Legal Department
    Ms Maisie CHENG
    Assistant Director Mandatory Provident Fund Office
    Mr Raymond TAM
    Assistant Director Mandatory Provident Fund Office
Item V
    Mr Albert K C LAM
    Principal Assistant Secretary for Financial Services
    Mr David Carse, OBE, JP
    Deputy Chief Executive Hong Kong Monetary Authority
    Mr Raymond LI
    Executive Director Hong Kong Monetary Authority
Item VI
    Mrs Carrie LAM
    Deputy Secretary for the Treasury
Attendance by invitation :
Item V
Consumer Council
    Mr LI Kai-ming
    Deputy Chief Executive
    Mr FUNG Chak-yan
    Chief Survey Officer
Clerk in attendance :
    Ms Estella CHAN
    Chief Assistant Secretary (1)4
Staff in attendance :
    Miss Pauline NG
    Assistant Secretary General 1
    Miss Polly YEUNG
    Chief Assistant Secretary (1)3
    Miss Anita SIT
    Senior Assistant Secretary (1)6

I. Confirmation of notes of meeting and matters arising

(LegCo Paper No. CB(1)117/96-97)

1. The minutes of the meeting held on 2 October 1996 were confirmed.

2. The Chairman reminded members that the Panel would meet with a visiting group from Shanghai Jiaotong University on 19 November 1996 to discuss matters related to Hong Kong's financial sector.

II. Date and items for discussion for the next meeting

3. The Chairman said that as a consultation paper on investor participation in the Central Clearing and Settlement System had recently been issued by the Hong Kong Securities Clearing Company Limited, the Panel might discuss the subject at the next regular meeting. He invited members to forward items they wished to discuss at the next meeing to the Panel Clerk.

III. Mandatory Provident Fund System

(LegCo Papers No. CB(1)219, 257and 299/96-97)

Forum for deliberation of the subject in future

4. Members agreed that in view of the wide concern among Council Members on the subject, and in order to assist the legislative process and avoid impinging on the Panel's own schedule, the Panel would recommend that a subcommittee be set up under the House Committee to study the subjects pertaining to the implementation of the Mandatory Provident Fund System.

(Post-meeting note: The House Committee endorsed the above recommendation at its meeting on 8 November 1996.)


5. Mrs Pamela TAN advised that the Administration planned to introduce the subsidiary legislation of the Mandatory Provident Fund Schemes Ordinance to the Legislative Council (LegCo) in April 1997. The subsidiary legislation would be drawn up based on the principal Ordinance.

6. Ms Maisie CHENG and Mr Raymond TAM presented the key features of the MPF System as set out in the briefing notes tabled.

Cost-effectiveness of the system

7. Members expressed concern that the overall administrative cost and other costs that would be incurred in the transfers of accrued benefits of scheme members from one scheme to another might be very high, given the high job mobility of the local workforce. Ms CHENG acknowledged that the higher the job mobility of the workforce, the higher the overall administrative cost and other related costs would be. She advised that the estimated administrative fee for each transfer of accrued benefits from one scheme to another was about several tens of dollars. There would be other charges involved in a fund transfer, such as the charges for redeeming the underlying assets in which the accrued funds were invested and the bid and offer price spread of the investment. The level of these charges depended on the investment policy of individual schemes. In this connection, industry schemes might help reduce the cost burden of scheme members switching jobs frequently. Some schemes might even impose penalty charges on scheme members for transfers of accrued benefits within a short period of time. These charges would not be subject to regulation but would be determined by market forces. She also advised that the subject of transfers of accrued benefits and industry schemes would be discussed in detail at a future briefing session.

8. Members noted that when employees change jobs, they would be given the option of leaving their accrued benefits under the schemes of their previous employments. They were concerned that with the high job mobility of the local workforce, it would not be cost effective to maintain the considerable number of small balance accounts left in individual MPF schemes. In response, Ms CHENG said that the Administration was aware of this potential problem but did not intend to impose restrictions on employees' choice in this regard. Instead, the Administration would introduce incentive measures to encourage employees to consolidate their fragmented dormant accounts. She also advised that the details of the incentive measures would be discussed at a future briefing session.

9. Some members expressed concern that a significant portion of the MPF scheme funds might be diverted to the payment of the management expenses and the commissions of scheme service providers. They suggested that more substantive information be provided on the estimated commissions and management expenses of MPF schemes and on the controlling measures of the Administration in this respect.Admin

Transparency in scheme operations

10. Members pointed out that employers and employees should be adequately informed of the different fees and charges before sponsoring or joining a MPF scheme. In reply, Mrs TAN advised that transparency was one of the key design features of the MPF System, for the purposes of achieving cost-effectiveness and security of scheme assets. Trustees and other service providers would be required to disclose the scales of fees and charges under the scheme, including information on the circumstances of fee charging and the basis of the fees. With adequate market competition, there would be little scope for service providers to impose unreasonable charges.

11. Members noted that the benefit statements of employees under the existing retirement schemes were often in English only and there were many technical terms in the statements without explanatory notes. As to whether the future subsidiary legislation would prescribe the frequency and the presentation of the benefit statements of scheme members, Ms CHENG advised that the Administration would propose to stipulate in the subsidiary legislation a requirement for all benefit statements of employees and audit reports to be in both English and Chinese and, furthermore, the items to be included in the benefit statements. A public education campaign would be launched to teach people how to read their benefit statements. As regards the frequency of benefit statements, the Administration proposed that trustees should be obliged to issue benefit statements to individual scheme members at least once a year. Under market competition, some trustees might voluntarily provide more frequent benefit statements to their scheme members. At members' request, the Administration agreed to provide a proposed list of the items to be included in the annual benefit statements of scheme members.Admin

Security of scheme assets

12. On the regulatory measures to guard scheme funds against imprudent investment activities, Mr TAM advised that there would be restrictions and guidelines on the investment of scheme funds: in particular there would be stringent rules governing the investment in high risk investment instruments such as derivatives. The objective was to make sure that service providers would be prudent in executing their investment responsibilities. The proposed regulatory measures for the management and investment of MPF scheme funds were more stringent than the existing statutory provisions and industry practices for unit trusts. Further information on the supervision and monitory measures would be provided in greater detail at a later briefing session.

13. On the relationship between the trustee and the investment managers, in particular when both parties of the same scheme belonged to the same corporate group, Mr TAM advised that an approach similar to that of the Securities and Futures Commission's Code on Unit Trusts and Mutual Funds would be adopted. Under the proposed regulations, it would be permissible for the trustee and the investment manager of the same scheme to belong to the same corporate group, provided that the trust company and the investment management company were both subsidiaries of a substantial financial institution, they were not subsidiary of each other, there was no common directorship and the two companies' respective managements were separate and independent from each other. In addition, in that situation, the trustee and the investment manager would be required to sign an undertaking which stipulated that they would act independently of each other in their dealings with the scheme.

14. Members further enquired whether there would be any restrictions on the amount of funds that a trustee might assign to the investment manager of the same corporate group, and on the volume of transactions that an investment manager might undertake with the brokers of the same corporate group. Mr TAM advised that presently, many financial groups in Hong Kong offered both fund management and trustee services through their subsidiaries. Under the proposed rules on the investment of scheme funds, a trustee could assign all the funds of a scheme to the investment manager of the same corporate group, and the investment manager could undertake transactions with the brokers or dealers of the same corporate group with a total amount not exceeding half of the scheme's transactions in value in any one year. He added that those rules were formulated on the basis of existing industry practices which were in conformity with international standards. Mrs TAN re-iterated that the basic principle was that the respective service providers of the same scheme must be separate and independent from one another in management, and transactions between them must be conducted at market prices and at arm's length.

Interface with existing retirement schemes

15. Members noted that under the existing retirement schemes registered under the Occupational Retirement Schemes Ordinance (ORSO), an employee who was rightfully dismissed was not entitled to the employer's contribution, while under the future MPF schemes, such an employee would not forfeit his entitlement to the employer's contribution. As to whether the Administration would review the existing registered ORSO schemes to avoid any potential anomality in this regard, Mr TAM advised that one major objective regarding the interface with the ORSO schemes was that the implementation of the MPF System should minimize its effects on the existing ORSO scheme arrangements. It was thus proposed that existing ORSO scheme members who opted to remain in the ORSO schemes would be subject to the existing arrangements of the ORSO schemes, and would not be entitled to the employer's contribution in the case of a rightful dismissal. As for new members joining the existing ORSO schemes after the implementation of the MPF System, they would not forfeit their entitlement to the employer's contribution in respect of the portion of funds up to the MPF equivalent of mandatory contributions, even in the case of a rightful dismissal because that portion of funds would be preserved in the same way as other accrued benefits under the MPF Schemes Ordinance.

Employer-based MPF System Vs employee-based MPF System

16. As regard the extent of choices of MPF schemes available to employees, Mrs TAN advised that it was stipulated in the principal MPF Schemes Ordinance that MPF schemes would be employer-based. Hence, employees would have to join the schemes sponsored or chosen by their employers for the respective employment periods. As to whether the scheme could be changed to employee-based, Mrs TAN said that the issue had been vigorously debated on when the principal Ordinance was examined by LegCo. It was finally resolved that the MPF schemes should be employer-based as it was more stable and more cost-effective. In this context, Mrs TAN stressed that references to other countries adopting mandatory contributory retirement systems indicated that employees might change schemes very frequently under employee-based systems and hence incurred high costs. She agreed to provide information on the experiences of other countries having similar retirement protection systems, comparing the pros and cons of employer-based systems with the employee-based ones.Admin

17. In reply to members' enquiry on whether there would be any restriction on the change of schemes by employers, Ms CHENG advised that the Administration did not intend to impose restrictions on employers in this regard. It was envisaged that employers would not change schemes frequently as any such change would incur considerable amount of administrative work and cost. She further advised that each employer would be obliged to sponsor at least one MPF Scheme. It was envisaged that under individual MPF schemes, there would be choices of investment products for employees, the extent of which would depend on the market development.

Procedural matters

18. Having considered that there were numerous subjects needed to be discussed, members suggested and the Administration agreed that the information papers on the relevant subjects to be discussed in forth comming meetings would be provided to members as soon as possible so that members could raise questions in advance of the meetings.Admin

Study on overseas experience

19. A member expressed concern that members might not be as well informed as the Administration of the experiences of overseas countries in operating mandatory contributory retirement systems. In this connection, he suggested that the Research and Library Services Division of the LegCo Secretariat conduct a study on the experiences of these overseas countries. The Chairman said that the suggestion would be conveyed to the future subcommittee to study the subject, if the House Committee so endorsed to set up the subcommittee.Clerk

IV. Consumer protection under the terms and conditions governing the use of locally-issued credit cards

(LegCo Paper No. CB(1)182/96-97)

20. The Consumer Council (CC) released a study report on consumer protection under the terms and conditions of locally-issued credit cards in the 240th issue of CC's magazine "Choice" (October 1996). The study compared between the terms and conditions of locally issued credit cards and those issued in USA, Britian and Australia and made some recommendations.

Meeting with the Consumer Council

21. At the invitation of the Chairman, Mr LI Kai-ming made the following points regarding CC's recent study:

  1. The biggest problem with the local credit card market was that credit card holders in general did not have a clear and comprehensive understanding of the terms and conditions governing the use of locally-issued credit cards.
  2. Another major problem revealed was concerned with the way local issuers presented the interest charge for credit facilities. Very often, issuers only presented the interest charge in terms of a flat rate, which usually appeared to be very low. When the flat rate was converted into the effective rate of interest, i.e. the Annual Percentage Rate (APR), the rate might be very high when compared with other credit facilities provided by banks. CC was of the view that issuers should always make known the APR to card holders and applicants. By making it compulsory for all issuers to advise card applicants and users of the applicable APR, there would be a bigger scope for competition in the credit card market as had been the case in the property mortgage market.
  3. While some recommendations in the study report might involve legislation, such as the recommendation on prohibiting issuers to cross-balance the accounts of card holders to offset the debts in the credit card accounts, some recommendations could be achieved without resorting to legislative measures, such as those on the need to give adequate notice of change of charges and terms of conditions and on compulsory presentation of the APR to card applicants and card holders. CC suggested that the latter type of recommendations should be implemented expeditiously.

22. Regarding non-bank credit card issuers, Mr LI advised that according to CC's statistics, complaints against non-bank credit card issuers were not substantial.

23. Mr LI concluded that the main concern of CC was that the terms and conditions of locally-issued credit cards were much more disposed to protect card issuers than to protect card holders. The primary purpose of CC's recommendations was to attain a right balance between the interests of the two parties.

Meeting with the Administration

Recommendations of the Consumer Council

24. At the invitation of the Chairman, Mr David Carse advised that the Code of Banking Practice (the Code) being drawn up by a working group under the Hong Kong Monetary Authority (HKMA) (the working group) would include a chapter on credit card services provided by banks. As the CC's report was released fairly recently, HKMA had not formed a definitive view on all the points raised in the report. However, many of the points raised were reasonable and would be taken into account in drawing up the Code.

25. On whether there was significant behavioural difference in the clearance of credit card debts between credit card holders in Hong Kong and those in overseas countries, Mr Carse said that he was not aware of any statistical analysis on this area. However, the actual amount outstanding in terms of credit card receivables on which interest would be charged was only 1.4% of the total amount of loans for use in Hong Kong, which indicated that local credit card users in general did not make use of the credit cards to obtain personal finance on a large scale. The anedoctal evidence HKMA obtained from banks also indicated that people tend to clear off their credit card debts before the debts incurred any interest charge.

26. Mr LI Wah-ming opined that as some of the recommendations of CC were not controversial and would not require significant resources to implement, HKMA should implement those recommendations expeditiously. Two of such recommendations were that:

  1. issuers should give adequate notice to card holders of any changes in the terms and conditions and charges prior to the effective date of such changes and charges; and
  2. credit card agreements should be written in plain language and printed in larger fonts.

27. In response to Mr LI's comments, Mr Carse advised that HKMA agreed with the above two recommendations in principle. Given that the report was released just about two weeks ago, HKMA had been taking prompt responsive actions by discussing the points raised in the report with banks. For changes in fees and charges and changes in card holders' liabilities and obligations, HKMA considered that issuers should give notice at least 30 days before the changes took effect. It was considering the appropriate notice period for other changes at the moment. Regarding the print fonts and formats for credit card agreements, issuers should highlight the important areas such as those concerned with card holders' liabilities and fees and charges. In addition, HKMA was exploring an idea with banks that apart from terms and conditions, there should be some descriptive materials, say in the form of a leaflet, to set out in simple and plain language the principal features of the credit card agreement which were of particular interests to card applicants and holders.

28. On the quoting of interest rate by credit card issuers, Mr Carse said that HKMA totally agreed with CC's and members' view on this point. It would be stated in the Code that whenever interest rate was quoted, issuers should quote the APR as well. The method of calculating the APR would also be specified in the Code. He also advised that the relevant chapter of the Code could be ready by the end of this year.

Abusive issue of credit cards

29. Regarding the concern about abusive issue of credit cards, Mr Carse agreed that credit cards should not be issued indiscriminately and HKMA had been discussing the issue with some credit card issuers. In the Code, it would be stated that issuers should issue credit cards only if they were requested in writing to do so or on renewal. Although HKMA was not aware of major problems in relation to bad debts of student credit card holders, it agreed that there should be some guidelines on issuing credit cards to students who did not have independent means of income. In cases where the applicant was a full-time student under the age of 25 and had no proof of independent means of personal income, it was proposed that the issuers should inform the applicant's parents of the details of the card issue including the credit limit granted to the applicant.

Non-bank credit card issuers

30. In response to members' enquiry on whether non-bank credit card issuers would also be bound by the Code on credit card services, Mr Carse remarked that non-bank issuers such as the American Express and the Diner's Club were not under HKMA's purview. Mr Albert LAM advised that credit card services provided by banks were subject to the regulation of HKMA by virtue of the fact that banks were subject to the regulatory regime under the Banking Ordinance but there was no specific legislation governing credit card issuers at present. However, non-bank issuers were under the pressure of market competition to take account of the practices of its bank competitors. Mr Carse added that at a recent meeting of the working group, the banking sector raised the concern that there might be a lack of level-playing field between bank issuers and non-bank issuers. He acknowledged that in the absence of legal powers, HKMA was not in a position to force non-bank issuers to abide by certain standards. However, it would send the relevant chapter of the Code to non-bank issuers and would persuade them to adopt similar principles voluntarily.

31. On the idea of establishing a credit card information centre or a credit bureau in Hong Kong, Mr Carse advised that HKMA was prepared to support and facilitate the setting up of such an organisation by the private sector but it had no intention to set up such an organisation on its own. HKMA was proposing to undertake a consultation on the subject, and would seek the views of the Banking Advisory Committee in this regard. It would have to look at the various implications of the idea, particularly those concerning data privacy. He further advised that some preliminary discussion had been held with the Data Privacy Commission on the issue and it was anticipated that the Commission would issue some guidelines on the handling of personal information of credit card holders. Mr LAW Cheung-kowk urged the Administration to actively support the establishment of a privately operated central credit bureau so as to facilitate the exchange of information among banks on defaulting credit card holders. He said that this was instrumental in the development of a healthy credit card market. He also suggested that the Administration consider adapting the Consumer Credit Act of the United Kingdom. Mr CHENG Kar-foo opined that the consultation exercise on the proposal of the setting up of a credit bureau should include a public consultation with a consultation paper available to the general public.

32. Members noted that at present, some banks' documents to credit card

holders were in English only and, even if bilingual, the Chinese version was often lacking in clarity. Mr Raymond LI advised that HKMA had always encouraged banks to provide bilingual notices to customers. As regards the clarity of the contents of banks' documents to customers, it was not practical for HKMA to oversee this matter. He suggested that card holders who had queries about the documents should seek clarification with the bank concerned.

Debt collecting agencies employed by banks

33. Regarding the disclosure of personal data of customers to debt collecting agencies employed by banks, Mr Carse advised that HKMA had already issued the chapter of the Code on debt collecting agents to banks. It would further examine the more general issue of disclosure of bank customers' personal information in liaison with the Data Privacy Commission. Mr SIN Chung-kai opined that the Code should also specify a minimum period of non-repayment of debts before banks could resort to debt collecting agencies for recovery of debts. Regarding the hotline of HKMA for complaints against debt collecting agencies employed by banks, Mr Carse said that the hotline was still in operation and HKMA would conduct a review of the hotline facility at the end of the year.

V. Any other business

Confidentiality of the 1997-98 Budget

34. Members made enquiries on a recent incident in which a member of the Preparatory Committee disclosed certain figures about the expenditure part of the 1997-98 Budget purported to have been agreed by both sides of the Expert Group on the 1997-98 Budget. They enquired about the authenticity of the figures disclosed, the confidentiality rules governing the discussions of the Expert Group, the sanction against unauthorized disclosure and the course of actions the Administration would take to ensure confidentiality of future discussions in the Expert Group.

35. In response to the above enquiries, Mrs Carrie LAM said that every year before the annual Budget was promulgated, there were usually some speculations about the Budget from different sources. The Administration, as had been in the past, would not comment on the speculations about the 1997-98 Budget. As for the recent incident, the Administration considered it not necessary to make further comments as the leader of the Chinese side of the Expert Group, Mr CHEN Zuo'er, had already made some clarifications.

36. On the confidentiality rules governing the discussion of the Expert Group, Mrs LAM advised that as the Expert Group was set up under the Sino-British Joint Liaison Group (JLG), the discussions of the Expert Group were governed by the confidentiality rules of the JLG. The basic principle of the confidentiality rules was that both sides should ensure that all the contents and related matters of the discussions of the Expert Group were not divulged inappropriately. The confidentiality rules did not specifically define the scope of persons to whom the discussions could be disclosed but were prescribed in terms that unless otherwise agreed between the two sides, information on the proceedings should not be disclosed. The working relationship of both sides were built on mutual trust and respect. She further advised that the confidentiality rules had been well observed by both sides over the past 18 months with 13 meetings of the Expert Group. The commitment to observing the confidentiality rules was affirmed by both sides from time to time.

37. As to whether the Expert Group would consider imposing sanctions against any future leakage of the Expert Group's discussions, Mrs LAM said that both sides were not inclined to adopt a punitive approach to handle the matter. It was preferred that any matters relating to inappropriate disclosure should be brought to the JLG level for resolution.

38. Some members commented that the recent incident of disclosure had aroused grave public concern. As Mrs LAM had mentioned, the Hong Kong Government had been able to maintain high confidentiality of the annual Budgets in the past, but it appeared that with the setting up of the Expert Group to discuss the 1997-98 Budget, confidentiality of the Budget had became a problem. Mr SIN Chung-kai pointed out that the revenue part of the Budget was more sensitive than the expenditure part. Thus, any privileged access to information about the revenue part of the Budget would have serious repercussions. In response, Mrs LAM agreed that the revenue part of the Budget was more market sensitive than the expenditure part. In this connection, the British Side had restated the confidentiality rules when the Expert Group entered into the discussion on the revenue part. As to whether the scope of persons to whom the discussions of the Expert Group could be disclosed was defined at this juncture, Mrs LAM said that she could not disclose the details on what had been discussed by the Expert Group in this regard as such was confidential.

39. The Chairman remarked that it was difficult for the public to comprehend why there was no sanction against any breach of the confidentiality rules of the JLG. It was also questionable whether the confidentiality rules were meaningful at all. Mrs LAM responded that the Administration would not speculate on its responsive action if either side of the Expert Group breached the confidentiality rules. She emphasised that both sides had observed the confidentiality rules satisfactorily so far.

40. The meeting ended at 11:30 am.

Legislative Council Secretariat

19 December 1996

Last Updated on 18 August 1998