Provisional Legislative Council

PLC Paper No. CB(1)1027
(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
Tuesday, 13 January 1998, at 8:30 am
in Chamber of the Legislative Council Building

Members present :

Hon Ronald ARCULLI, JP (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 Ambrose LAU Hon-chuen, JP

Members absent :

Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Hon MA Fung-kwok
Dr Hon Mrs TSO WONG Man-yin
Hon YEUNG Yiu-chung
Hon Paul CHENG Ming-fun, JP
Dr Hon TANG Siu-tong, JP
Hon NGAN Kam-chuen
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

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 :

Mr LEE Yu-sung
Senior Assistant Legal Adviser

Miss Connie FUNG
Assistant Legal Adviser 3

Mr Daniel HUI
Senior Assistant Secretary (1)5

I.Meeting with the Administration

Members continued scrutiny of the draft Mandatory Provident Fund Schemes (General) Regulation (the draft Regulation) and deliberated on the following proposed sections.

Proposed section 92

2.In reply to the Chairman's enquiry on proposed section 92(6) and (7), the Assistant Director/Scheme Operations (AD/SO) explained that under the proposed section, the approved trustee would be required to inform the MPFA if it had received a resignation notice from the auditor of the registered MPF scheme. She further explained that as the scheme auditor was appointed by the approved trustee, it would be appropriate to require the approved trustee, instead of the auditor, to inform the MPFA of the auditor's resignation. However, under other provisions in the draft Regulation, the scheme auditor would be required to inform the MPFA direct on certain specified matters in order to fulfil its whistle-blowing duties.

3.AD/SO advised that proposed section 92(6) would be amended to require the approved trustee to inform the MPFA "within 7 days" upon receipt of a resignation notice from the scheme auditor.

4.To avoid conflict of interest, a member enquired whether the approved trustee should be required to appoint another scheme auditor after a prescribed period. In response, the Administration advised that auditors were independent professionals with their own code of practice, such as rotation of auditing staff, to avoid conflict of interest. In this connection, the Director/MPF Office (D/MPFO) cautioned that requiring the appointment of another auditor for a registered scheme after a prescribed period would differ from existing industry practice of the auditing profession and would have serious implications. AD/SO supplemented that if necessary, the MPFA could appoint another auditor independent of the approved trustee to conduct a special audit on the accounts of a MPF scheme.

Proposed section 95

5.Some members doubted whether the elaborative style of drafting in the proposed section would create operational difficulties to the auditors in performing their professional duties. In response, AD/SO clarified that the wordings in the proposed section were adopted from guidelines issued by the Hong Kong Society of Accountants (HKSA). Moreover, the HKSA had been consulted and was agreeable to the proposed provisions. She supplemented that the HKSA would prefer clear and detailed stipulation of auditors' duties in the Regulation.

Proposed section 96

6.Elucidating on proposed section 96(3), the Assistant Director/Regulatory Standards (AD/RS) advised that clear records had to be kept by the custodian to delineate the MPF scheme assets from the other assets kept by the custodian. In this connection, the Chairman was concerned whether the proposed subsection could deal with the situation where losses incurred on assets kept by the custodian had affected more than one account. The Administration noted the Chairman's concern and would consider whether the proposed subsection should be amended or whether the situation could be dealt with by issuing guidelines.

7.AD/SO said that the Administration would amend proposed section 96(8) to include a penalty provision for failure of an approved trustee to take remedial action concerning the financial soundness of a MPF scheme as directed by the MPFA under proposed section 96(6).

Proposed section 99

8.Members considered that obstructing a MPF scheme auditor in performing auditing functions was a serious offence and suggested that the penalty applicable to the offence should be in line with that for obstructing MPFA investigators (i.e. a fine at level 6 and with imprisonment terms). In response, the Administration agreed to move a Committee stage amendment to the enabling provision under proposed section 46(2) of the MPF Schemes Ordinance (MPFSO) to the effect that the maximum fine for contravention of the regulations would be raised to level 6. The Administration would thereafter amend proposed section 99(3) of the draft Regulation accordingly and consider whether imprisonment term was required.

Proposed section 101

9.AD/SO said that proposed section 101, which had been inadvertently included in the draft Regulation, would be deleted because the penalty provision for knowingly giving false or misleading information to an auditor of a MPF scheme had already been included in proposed section 43E of the principal Ordinance.

Proposed section 102

10.AD/RS advised that the Administration would amend proposed subsection (7)(a) to the effect that the content requirements on the balance sheet, profit and loss account and the auditor's report on a corporate trustee should be in accordance with similar requirements in the Companies Ordinance. 11.At the suggestion of the Chairman, the Administration agreed to use the expression "the immediately preceding financial year" in place of "the last financial year" in proposed section 102(7)(a) to (c).

Proposed section 103

12.AD/SO advised that proposed section 103(2)(f) was redundant and would be deleted because the proposed requirement of a statement by the approved trustee as to whether there was any change to the investment policy applicable to the MPF scheme had already been covered under proposed section 80(2)(c) of the draft Regulation.

13.In reply to the Chairman, AD/SO confirmed that an approved trustee who failed to provide to the MPFA the information required under the draft Regulation would have contravened the Regulation and be liable to prosecution.

Proposed section 104

14.Elaborating on proposed section 104, AD/SO advised that subject to members' view, the annual registration fee in respect of a registered scheme to be paid by the approved trustee would be a fixed percentage of the value of the scheme assets and the prescribed fee, when finalized, would be stipulated in Part II of proposed Schedule 1.

Proposed section 105

15.The Administration advised that the expression "financial period" in proposed section 105(1) would be replaced by "relevant period" to rectify a drafting error.

16.Noting that for cost considerations, employer-sponsored MPF schemes with less than 1,000 scheme members would be exempted under proposed section 105(2) from the requirement to report on internal control measures, members pointed out that the number of scheme members of an employer-sponsored scheme might vary as the number of employees fluctuated. At the request of members, the Administration would consider providing greater flexibility in the wordings of the proposed section to cater for possible fluctuation in the number of employees.

17.AD/SO advised that proposed section 105(6)(a) would be deleted because proposed subsection (6)(b) had already specified that the period covered in the approved trustee's report on internal control measures should be "the financial period of the scheme concerned" and "financial period" would be the same as "financial year" as defined under proposed section 72 of the draft Regulation.

Proposed section 107

18.In reply to a member's enquiry on proposed section 107, AD/RS confirmed that where an approved trustee failed to meet the capital adequacy requirement, it would have to inject additional capital to meet the requisite level, failing which the approved trustee's administration of the MPF schemes managed by it might be suspended.

Proposed section 108

19. AD/SO advised that a penalty provision to sanction a scheme trustee's non-compliance with the requirement in subsection (7) would be added.

II.Any other business

20.The Chairman reminded members that the next meeting of the Committee would be held at 10:45 am on the same day.

21.The meeting ended at 10:30 am.

Provisional Legislative Council Secretariat
26 February 1998