Provisional Legislative Council
PLC Paper No. CB(1)826
(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, 16 December 1997, at 2:30 pm
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 CHAN Yuen-han
Hon NGAN Kam-chuen
Members absent :
Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Hon Henry WU
Hon MA Fung-kwok
Dr Hon Mrs TSO WONG Man-yin
Hon CHAN Kam-lam
Hon YEUNG Yiu-chung
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 :
Clerk in attendance:
- Mrs Pamela TAN
- Mandatory Provident Fund Office
- Ms Maisie CHENG
- Assistant Director
- Scheme Operations
- Mr Raymond TAM
- Assistant Director
- Regulatory Standards
Staff in attendance :
- Miss Polly YEUNG
- Chief Assistant Secretary (1)3
- 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 the scrutiny of the draft Mandatory Provident Fund Schemes (General) Regulation (the draft Regulation) and deliberated on the following proposed sections.
Proposed section 6
2.In reply to a members enquiry on monitoring of insurers providing adequate indemnity insurance to trustees and service providers for the purpose of the Mandatory Provident Fund Schemes Ordinance (MPFSO), the Assistant Director/Regulatory Standards (AD/RS) advised that insurance companies registered in Hong Kong were subject to monitoring by the Insurance Authority (IA). He further explained that as provided in proposed section 3 of the draft Regulation, an overseas insurer had to satisfy the MPFA that it was adequately supervised by an insurance supervisory authority at the place where it was incorporated before the overseas insurer could become an approved overseas insurer.
3.In this connection, AD/RS confirmed that Hong Kong authorized insurer or an eligible overseas insurer which was an associate of a trustee would be allowed to provide indemnity insurance to the trustee for the purpose of the MPFSO.
|4.On proposed section 6(2)(b), members noted that the future MPFA would issue guidelines to specify the minimum credit rating requirement on eligible insurers. The Administration clarified that the future MPFA would approve the minimum credit rating and the credit rating agency for the purpose of proposed section 6(2)(b). The Administration would check whether the wording in proposed section 6(2)(b) could adequately reflect the policy intent.
|5.In reply to the Chairman, AD/RS confirmed that the amount of minimum indemnity insurance stipulated in proposed section 6(3) would be determined in accordance with the market value of the total assets of a MPF Scheme. As requested by some members, the Administration would review whether the draft provisions could adequately reflect the policy intent that adequate indemnity insurance should be an ongoing requirement.
|6.On proposed section 6(4)(g), the Chairman enquired about the circumstances under which the trustee had to be indemnified out of the scheme assets. In reply, AD/RS advised that the proposed section was intended to deal with some unusual cases in which a trustee had paid money out of its own pocket to cover losses in scheme assets which were not due to misfeasance or illegal conduct of the trustee. At the request of the Chairman, the Administration would elaborate further, with examples, on this point at a future meeting.
|7.As regards proposed section 6(6)(a), members considered it acceptable to allow a trustee to aggregate scheme assets of all registered schemes administered by the trustee for the purpose of taking out indemnity insurance in order to lower the premium. Members noted however that the proposed section did not specify how the amount of insurance cover should be apportioned among several schemes of different assets. In reply, AD/RS advised that this issue was highly technical and the future MPFA would issue guidelines to clarify the arrangement. As requested by the Chairman, the Administration would further consult the insurance industry on the concern raised by members.
Proposed section 8
|8.AD/RS informed members that the proposed definition on "assets held in Hong Kong" under the proposed section resembled a similar definition used in the Insurance Companies Ordinance (ICO). However, members were of the view that importing a similar definition from the ICO might not be appropriate since the ICO had been enacted a long time ago. Moreover, members noted that there was no provision stipulating that the value of assets should be net of depreciation. The Administration would review whether the wordings of proposed section 8 would need to be revised.
|9.At members request, the Administration would confirm the compatibility of the requirements under proposed section 8(e) and proposed section 8(g)(ii) which related to bonds and other securities issued outside Hong Kong.
Proposed section 9
10.On proposed section 9(2), member raised the following concerns:
- the current wordings of the draft provision would seem to imply that the capital adequacy requirement was an aggregate of at least HK$300,000,000 and not HK$150,000,000 as intended; and
- the policy intent of prescribing an on-going requirement on the capital adequacy requirement was doubtfully reflected in the draft provision.
|The Senior Assistant Legal Adviser (SALA) and the Administration would review the drafting of proposed section 9(2) and report back to the Committee.
|11.In reply to members, AD/RS confirmed that a substantial financial institutions undertaking given under proposed section 9(3) to provide continuous financial support to an approved trustee or to a company applying to become an approved trustee could not be released without the MPFAs approval.
Proposed section 10
|12.At members request, the Administration would re-draft proposed section 10 to state clearly that the undertaking of a substantial financial institution to provide continuous financial support to an approved trustee or to a company applying to become an approved trustee had to be subject to the satisfaction or approval of the MPFA.
Proposed section 13
|13.In reply to the Chairman, AD/RS confirmed that the eligibility requirements stipulated in proposed section 13 were on-going requirements for a Hong Kong company acting as a corporate trustee, and not just requirements to be fulfilled on application. At members request, the Administration and the Senior Assistant Legal Adviser (SALA) would review whether the drafting of this proposed section and other sections, if any, had adequately reflected the policy intent of an on-going requirement as advised by the Administration.
|14.On proposed section 13(1)(b), AD/RS explained that an approved corporate trustee incorporated in Hong Kong must have at least five directors at all times. To address members concerns about possible operational difficulties in complying with this requirement, the Administration would consider members suggestion of providing a grace period for a trust company to fill a vacant director post in case one of the five directors of the trust company was absent for some unexpected reasons.
15.In reply to the Chairman, AD/RS advised that the same expression "good reputation and character" under proposed section 13(2)(a) was also used in the principal Ordinance to prescribe the eligibility requirement for controllers of a corporate trustee or natural persons applying to become approved trustees.
16.On proposed section 13(2)(b), a member queried the basis for requiring only "a majority ", instead of "all", of the directors of a company applying to become an approved trustee to have the skill, knowledge, experience and qualifications for the successful operation of provident fund schemes. In reply, AD/RS considered that the proposed requirement was adequate in ensuring the presence of persons with relevant experience and knowledge on the management board of a corporate trustee. He cautioned that an unduly stringent requirement might debar new entrants, in particular small newly set up trust companies, and stifle healthy competition in the MPF market. In this connection, the Chairman suggested that the MPFA should, in approving a corporate trustee, inform the applicant as to which of its directors were, in the opinion of the Authority, in possession of the requisite skill, knowledge, experience and qualifications.
|17.Some members raised concern about the wider issue of local companies competitiveness in the future MPF market, AD/RS advised that local investment companies had their own market niche as there were at present local companies operating ORSO schemes. At the Deputy Chairmans request, the Administration would provide information on the market shares of local and foreign companies acting as ORSO scheme operators.
|18.In this connection, some members were also concerned about small local companies being forced out of the retirement scheme industry and possible market monopoly. To obtain more information on this aspect, the Chairman said that the Hong Kong Retirement Scheme Association (HKRSA) should be invited to advise the Committee of the number of ORSO scheme operators at the enactment of the Occupational Retirement Schemes Ordinance and the current number of scheme operators.
(Post-meeting note: The HKRSA has advised that they do not have the requisite information and suggested that the Registrar of Occupational Retirement Schemes be approached. Action has been taken accordingly.)
|19.At the request of the Chairman, SALA would go through the draft Regulation and clarify with the Administration the appropriateness of presenting the title of a section of a piece of legislation in the form of a question, such as in proposed sections 3 to 6 of the draft Regulation, and the use of a dash sign, such as in the provisions of proposed sections 6(3), 6(5) and other sections, if any.
|20.For the purpose of improving clarity, the Chairman suggested that the Administration should consider stipulating the series of monetary amounts in the form of a Schedule to the draft Regulation.
II.Any other business
21. Members agreed that the Bills Committee would hold further meetings as follows: -
8 January 1998, 8:30 am - 10:30 am;
8 January 1998, 10:45 am - 12:45 pm;
8 January 1998, 2:30 pm - 4:30 pm;
8 January 1998, 4:30 pm - 6:30 pm;
10 January 1998, 8:30 am - 10:30 am;
10 January 1998, 10:45 am - 12.30 pm;
12 January 1998, 2:30 pm - 4:30 pm;
13 January 1998, 2:30 pm - 4:30 pm; and
14 January 1998, 8:30 am - 10:30 am
22.The meeting ended at 4:30 pm.
Provisional Legislative Council Secretariat
3 February 1998