Provisional Legislative Council
PLC Paper No. CB(1)827
(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 4:45 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
1.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 14
2.In reply to a members enquiry on the residency requirement of the directors of an overseas trust company, the Assistant Director/Regulatory Standards (AD/RS) explained that as provided in proposed section 14(3), an overseas company applying to become an approved trustee would be required to designate one of its controllers to be its "Hong Kong chief executive" who should, in accordance with proposed section 14(8)(b), ordinarily reside in Hong Kong. The Administration considered that it would be unduly restrictive in requiring the "Hong Kong chief executive" to be a Hong Kong permanent resident. AD/RS supplemented that the requirement proposed in section 14(3) resembled a similar requirement on insurance companies.
3.Responding to the Chairman, AD/RS confirmed that as proposed in section 14(4)(b), the "Hong Kong chief executive" of an overseas company applying to become an approved corporate trustee would be required to satisfy the Mandatory Provident Fund Schemes Authority (MPFA) of his possessing the necessary skill, knowledge, experience and qualifications for the successful operation of MPF schemes.
Proposed section 16
4.AD/RS advised that a natural person could become the trustee of an employer sponsored scheme if he fulfilled the criteria set out under proposed section 16.
|5.At a members suggestion, the Administration would consider simplifying the title of proposed section 16 to read as "Eligibility requirements for natural persons".
Proposed section 23
6.Elaborating on proposed section 23(3), the Assistant Director/Scheme Operations (AD/SO) said that a trustee applying for registration of a scheme would be taken to have given an undertaking required in Part III of the draft Regulation if the governing rules of the scheme required the applicant to take or not to take an action in accordance with the relevant provisions in the said Part III. The MPFA would ensure that the governing rules had included all the necessary requirements and standards before registering a scheme.
7.In reply to a member, AD/SO further advised that requiring a trustee applying for registration of a scheme to include all the necessary requirements and standards in the scheme rules would facilitate enforcement by the MPFA because the scheme rules would be binding on the trustee and scheme members.
Proposed section 24
8.In response to the Deputy Chairmans enquiry on proposed section 24(6), AD/RS explained that a performance guarantee required in the proposed section was similar to a fidelity bond issued by an authorized insurer for the purpose of indemnifying scheme members against losses resulting from an approved trustees failure to perform its duty, both statutory and fiduciary. The amount of performance guarantee should be $10,000,000 or 10% of scheme assets, whichever was the less. AD/RS further confirmed that the requirement similar to a performance guarantee was also found in other jurisdictions.
Proposed section 26
|9.As suggested by the Deputy Chairman, the Administration would revise proposed section 26(2)(c) to the effect that all the fees and charges payable under a MPF Scheme would be fully disclosed.
10. Elucidating on proposed section 26(3), AD/SO advised that the MPFA would issue guidelines requiring all MPF scheme operators to disclose the annual fees payable by scheme members at different monthly income levels of $4,000, $10,000 and $20,000 and by participating employers of different employment sizes. AD/SO added that the availability of such information would facilitate comparison of fees payable under different schemes.
Proposed section 29
11.Members noted that proposed section 29 would require an approved trustee to undertake not to charge any fees or impose any penalty for handling portability cases, other than "actual and reasonable expenses" incurred in redeeming and purchasing unit trust funds. In reply to a member, AD/SO confirmed that the MPFA would issue guidelines on what would constitute "reasonable expenses" incurred by a trustee in redeeming and purchasing unit trust funds.
Proposed section 30
12.AD/SO elaborated that the proposed section aimed at protecting small balance accounts from erosion by administrative fees and at encouraging employees with small balance accounts to consolidate their accounts. An approved trustee would not be permitted to charge any fees or to impose any financial penalty for the transfer of a scheme members accrued benefits to another scheme if the request for transfer of accrued benefits was made within 12 months after cessation of contributions and the amount of accrued benefits was less than $5,000 at the time of the transfer.
Proposed section 31
13.On the proposed capital preservation fund, AD/RS further advised that the requirements under proposed subsections (3)(a) and (b) were modelled on those for money market funds authorised by the Securities and Futures Commission (SFC) while proposed subsection (3)(c) sought to safeguard a capital preservation fund against any risk associated with foreign currency fluctuation. As regards investment returns, AD/RS anticipated that the returns from such a fund would probably be about 3% above the savings deposit interest rate.
|14.On the proposed requirement under subsection (5) which required all income arising from investment to be credited to scheme members as accrued benefits at least once each month, the Chairman was concerned that technical difficulties might arise because proposed subsection (3)(b) would allow a maximum fund maturity period of 90 days which meant that the interest income from some fixed-term investments could not be credited on a monthly basis. In response, AD/RS explained that the investment income or loss of a scheme had to be valuated not less frequent than monthly and any unrealized gain or loss would be taken into account in calculating the value of scheme assets. At the Chairmans request, the Administration would consider whether proposed section 31(5) would need to be revised to also cater for the investment restriction under proposed subsection (3)(b).
II.Any other business
|15.The Chairman suggested and members agreed that the nine organizations which attended an earlier meeting of the Committee held at 8:30 am on the same day should be invited to present their views on the draft subsidiary legislation at the meeting to be held on 12 January 1998.
16. The Chairman reminded members that the next meeting of the Bills Committee would be held on 8 January 1998 at 8:30 am.
17.The meeting ended at 6:00 pm.
Provisional Legislative Council Secretariat
3 February 1998