Provisional Legislative Council
PLC Paper No. CB(1)877
(These minutes have been
seen by the Administration)
Ref : CB1/BC/3/97
Bills Committee on
Provident Fund Schemes
Legislation (Amendment) Bill 1997
Minutes of the meeting held on
Thursday, 8 January 1998, at 8:30 am
in Chamber of the Legislative Council Building
Members present :
Hon Ronald ARCULLI, JP (Chairman)
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon WONG Siu-yee
Hon LEE Kai-ming
Hon Mrs Peggy LAM, JP
Hon Henry WU
Hon CHAN Yuen-han
Hon CHAN Kam-lam
Hon YEUNG Yiu-chung
Hon NGAN Kam-chuen
Members absent :
Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Hon MA Fung-kwok
Dr Hon Mrs TSO WONG Man-yin
Hon Ambrose LAU Hon-chuen, JP
Hon Paul CHENG Ming-fun, JP
Dr Hon TANG Siu-tong, JP
Hon CHOY So-yuk
Public officers attending :
- Mrs Pamela TAN
- Mandatory Provident Fund Office
- Ms Maisie CHENG
- Assistant Director
- Scheme Operations
- Mr Raymond TAM
- Assistant Director
- Regulatory Standards
- Mr Duncan BERRY
- Senior Assistant Law Draftsman
- Department of Justice
- Miss Shandy LIU
- Government Counsel
- Law Drafting Division
- Department of Justice
Clerk in attendance:
- Miss Polly YEUNG
- Chief Assistant Secretary (1)3
Staff in attendance :
- Miss Connie FUNG
- Assistant Legal Adviser 3
- Mr Daniel HUI
- Senior Assistant Secretary (1)5
I. Confirmation of minutes of meetings
(PLC Papers No. CB(1)682, 688, 705 and 709)
The minutes of meetings held on 1, 3, 4 and 8 December 1997 were confirmed.
II. Meeting with the Administration
2.Members continued the scrutiny of the draft Mandatory Provident Fund Schemes (General) Regulation (the draft Regulation) and deliberated on the following proposed sections.
Proposed section 31
In reply to members, the Assistant Director/Regulatory Standards (AD/RS) confirmed that the Administration was examining various possible amendments to the provisions on capital preservation product (CPP) in order to provide an investment option which would cater for the needs of those MPF scheme members who preferred low risk investments and which would also be commercially viable for service providers. He elaborated as follows:
- the Administration was considering the use of a prescribed fee structure in ensuring a low level of fees on CPP; and
- in respect of (a) above, the Regulation could specify that the fees on CPP had to be the lowest among all investment products in a registered MPF scheme and that the fees on CPP should be charged as a fixed percentage of the scheme assets.
4.Miss CHAN Yuen-han expressed strong objections to the proposed alternative mentioned in paragraph 3 above because the revised proposal would require scheme members to pay a management fee to the approved trustee even if the investment return was below the savings account interest rate. She considered that this approach would go against the consensus of the former Subcommittee on the MPF System about the nature and purpose of a CPP. She emphasized that if the CPP provisions were to be amended as proposed by the Administration, she would urge her Party to vote against the draft Regulation. She suggested that the CPP provisions should be amended along the following lines:
- to retain the original provision on payment of scheme fees i.e. fees were payable only if the investment return was higher than the savings account interest rate; and
- include a new provision to prescribe that fees on the CPP should be the lowest among investment products in a registered MPF Scheme.
|5.In response to some members concerns, AD/RS and the Director/MPF Office (D/MPFO) reiterated that the Government had not yielded to pressures from the retirement scheme industry. At members earlier request to improve proposed arrangements on the CPP, the Government had formulated the present revised proposal in the hope that it would be mutually acceptable to the Committee and the industry. D/MPFO said that the Administration would examine various alternatives on CPP and would provide a paper to set out in detail its revised proposal on CPP for members consideration.
Proposed section 32
6.Responding to a members enquiry, AD/RS advised that the statement of investment policy (SIP) of a MPF scheme had to be approved by the Securities and Futures Commission (SFC) and the MPF Schemes Authority (MPFA) as a scheme registration requirement. An approved SIP would form part of the investment contract between the approved trustee and the investment manager. In approving the SIP, MPFA would ensure that no misleading information had been included. For monitoring purposes, the auditor of a MPF scheme would be required to state in the annual report of the scheme as to whether the schemes investment activities were in line with the approved SIP.
|7.The Deputy Chairman was concerned about the extent of information to be provided in the SIP. At members request, the Administration would provide some examples of current SIPs approved by the SFC for members reference.
Proposed section 35
8.Elaborating on proposed section 35, AD/RS said that the general duties imposed on an approved trustee under the proposed section were based on the "prudent mans rule" and that similar provisions were found in comparable legislation in other jurisdictions.
Proposed section 36
9.Elucidating on proposed section 36, AD/RS advised that except for a constituent fund that was a pooled investment fund, the approved trustee of a registered MPF scheme must appoint an investment manager to manage the investment of scheme funds and the contract for the appointment of the investment manager must comply with proposed Schedule 2 of the draft Regulation.
Proposed section 37
10.To address members concerns raised at an earlier meeting about restricting the delegation of overseas investment management functions to an overseas associate of the investment manager, the Administration would amend the proposed section to allow an investment manager of a MPF scheme to appoint an overseas investment company which was not its subsidiary or associate to manage overseas investments of the scheme, on condition that the overseas investment company was duly registered with the regulatory authority of the country concerned, and that the company had an associate or branch office in Hong Kong which was registered with the SFC. The Deputy Chairman expressed his support for the proposed amendment as it would enable local investment companies to enter the MPF business and boost market competition.
11.In this connection, the Chairman enquired whether the MPF scheme investment manager would enter into a contract with the overseas investment company or with the latters branch office or associate in Hong Kong. He was concerned about the legal liability of the overseas company for the acts of its associate or branch office in Hong Kong. In reply, AD/RS advised that the MPFA would issue guidelines to specify the legal liabilities of the local branch office or associate of the overseas investment company.
Proposed section 38
12.In reply to members, AD/RS confirmed that the proposed section specifying the conditions under which an investment manager of a MPF scheme would be considered independent of the approved MPF scheme trustee and of the custodian of the scheme assets had been adopted from similar provisions in the Securities and Futures Commission Ordinance.
Proposed section 39
13.The Chairman considered that an approved trustees responsibilities in drawing up a good investment management contract should not be limited to ensuring compliance with proposed Schedule 2 of the draft Regulation. At the Chairmans request, the Administration would check whether it was necessary to introduce further provisions to the effect that mere compliance with the said Schedule 2 would not absolve a trustee from its professional duties.
14. In reply to members enquiry on proposed section 39(5), AD/RS advised that an investment managers securities transactions done through its different associates during a financial year of the scheme would be considered in totality in determining whether the benchmark of "no more than half of the total value of those transactions" had been complied with.
III. Any other business
15.In reply to members, D/MPFO said that it would not be possible to deal with the Bill and the draft subsidiary legislation at the same Provisional Legislative Council (PLC) meeting as different legislative procedures had to be followed. In this connection, the Chairman said that legal advice from the Secretariat would be sought on whether it was legally in order for the Second Reading debate on the Bill and the debate on the motion to approve the proposed subsidiary legislation to take place at the same PLC meeting.
(Post-meeting note : The Legal Adviser would provide his advice in writing.)
16.D/MPFO indicated the Administrations intention to resume the Second Reading debate of the Bill on 11 February 1998. The draft subsidiary legislation, which would be finalised in the light of the amendment ordinance, would be presented to the Executive Council (ExCo) for endorsement and then introduced into the PLC in accordance with section 35 of Cap 1.
17.A member was concerned that in the event of the Bill being passed, the Administration might subsequently introduce substantial amendments to the draft Regulations which differed drastically from the outcome of the Bills Committees deliberations. To address these concerns, the Chairman said that the Administration should state during the Second Reading debate of the Bill that the proposed subsidiary legislation as discussed by the Bills Committee and modified in consultation with the Administration would be introduced into the PLC subject to the ExCos endorsement. He also suggested that members might have to examine the proposed subsidiary legislation after it had been formally gazetted and introduced into the PLC.
18.The meeting ended at 11:00 am.
Provisional Legislative Council Secretariat
9 February 1998