LegCo Sub-Committee on MPF System
Information Note
Comments on the Draft MPF Subsidiary Legislation

This paper summarizes comments by the MPF Advisory Board, Panel of Specialists and professional bodies on Parts I and II of the draft MPF Schemes (General) Regulation at the Annex for Members�reference.

Comments on other parts of the draft regulations will be presented in separate papers.

Mandatory Provident Fund Office
Financial Services Branch
20 May 1997


Comments by the MPF Advisory Board,Panel of Specialists and Professional Bodies on Parts I and II of the Draft MPF Schemes (General) Regulation


1. References to "sections" : suggest to add "of these Regulations" since people could otherwise be confused between the Ordinance, the Regulations and any Rules.

2. Definitions of "Schemes", "Fund", "Assets", "Securities" need to be consistent.

3. Except in section 209(1) where it first occurs, all references to provident fund scheme should read "Registered Scheme under this ordinance".

Part I Preliminary

Clause 2 : Interpretation

"approved pooled investment fund" - are insurance policies being allowed even though they are not transparent?

"authorized financial institution" - suggest to use "authorized institution" which is a familiar term to all lawyers and financial service providers in Hong Kong.

"close relative" - in view of the definition, shall we presume that the relatives of spouse are purposely excluded?

"controller" - the 15% benchmark used in this definition is not consistent with the 10% used in the Banking Ordinance for minority shareholder controller and 10% used for substantial shareholder in the Securities and Futures Commission Ordinance or the 20% used in Statements of Standard Accounting Practice 10 for significant influence. Prefer 20% be adopted as the present level could be too onerous.

"constituent fund" - the definition of "constituent fund" does not work. It seems to mean an investment fund, which does not constitute a scheme, or in any meaningful sense "form part of a scheme".

"market value"
- if investment in property is prohibited why is this definition required?

- as the definition includes "property", "property" needs to be defined.

"net assets"
- it appears that the definition can be made clearer by specifying whether intangible assets and share capital are to be excluded from the body’s assets and liabilities respectively.

"subsidiary" - it is unclear why the Law Draftsman intends to use a definition other than that contained in the Companies Ordinance.

Clause 3 : "Substantial financial institution"

- Should not an insurer or trust companies incorporated outside Hong Kong be subject to regulatory control broadly equivalent to that applying to an authorised insurer or registered trust company?

- For the convenient compliance of this Regulation by overseas financial institutions, it is suggested that the phrase "or its equivalent" be added to the amount of share capital required therein. Other similar provisions in this Regulation should also be likewise modified.

Part II Application for Approval as Trustee

Section 201

The list of assets held in Hong Kong, i.e. items (a) to (j), may not be exhaustive. The MPF Authority should be given the discretion to approve other items as assets held in Hong Kong.

Section 201(c)

Definition of "assets held in Hong Kong" - the reference to "money ..... deposited in Hong Kong" is imprecise. Once money is deposited at an authorized institution it ceases to be an asset of the scheme and the scheme asset becomes the deposit itself (i.e. debt due from the authorized institution). Suggest to use the wording "deposits held with an authorized institution".

This definition would include deposits with a foreign branch of an overseas incorporated bank licensed under the Banking Ordinance. Is this desirable?

Section 201(d) to (g)

It could in practice be difficult for the preparers of accounts and the auditors to determine whether or not the certificates and negotiable instruments were kept in Hong Kong at the financial year end.

Section 201(g), (h) & (i)

It seems too harsh that shares registrable and debts enforceable in Hong Kong would not qualify as "assets held in Hong Kong" if they are also registrable/enforceable elsewhere.

Section 203

The section presently requires all of an applicants business activities to be undertaken in Hong Kong. As drafted, it would preclude an applicant that conducted day to day business activities in other parts of the world such as an international trustee company with activities outside HK. Equally, it would preclude any trustee company that undertakes any of its business processes (e.g. data entry, duplicate record keeping etc.) outside HK (in say, Shenzen).

Section 203(3)(b)

Requiring "a majority of the directors ..... to have the skills, knowledge, experience and qualifications that are, in the opinion of the Authority, necessary for the successful operation of such schemes" seems unduly harsh.

Section 203(4), (5) & (6)

- Section 100 of the Trustee Ordinance currently requires a local trustee to have at least 5 shareholders unless owned by a bank. The Trustee Ordinance will need to be amended in order that the requirements of the parent company or shareholders of the trustee can practically meet the capital backing requirements, unless each shareholder is supposed to be "substantial" as defined.

- Suggest that the applicants should own net assets in Hong Kong - assets alone could meet the criteria but be eliminated by HK liabilities.

- Suggest that HK$15 million should be HK$30 million net in HK. (Same comments apply to S.204).

- It is not necessary to restrict the application to wholly owned subsidiary of a substantial financial institution so long as the application can secure "continuous financial support" from the substantial financial institution.

Section 203(5)(b)

If the applicant does not have the necessary capital requirements (but does have the necessary knowledge requirements), why is it necessary that it should be a subsidiary of a financial institution? This would exclude, for instance, an otherwise qualified subsidiary of a large hong (or any other suitable conglomerate).

Section 203(8)

- The requirements of this section must be limited to the applicant’s MPF business. The Authority has no power under the Ordinance to make regulations in relation to its other business.

- Is it acceptable for the applicant to "employ" contractors to carry out these activities?

- Suggest to rewrite the subsection as follows :

  1. the day to day business activities of the applicant are substantially conducted in Hong Kong and the applicant keeps or has access to its records in Hong Kong; and

  2. the employees of the applicant who carry out those activities are located in Hong Kong or subject to supervision from Hong Kong; and ....".

Section 204(1)(b)

It is more appropriate that section 204(1)(b) should state that the objects of the company must be permitted to carry out trust business. The objects specified in section 81 of the Trustee Ordinance are not all relevant to MPF business (e.g. acting as guardian of the property of infants or committee of the estate of lunatics). The requirement of section 204(1)(d)(ii) should be sufficient to ensure that an overseas applicant does not carry on any business incompatible with being an MPF trustee.

Section 204(1)(d)(i)

This section shows a fundamental misunderstanding of the law of trusts. The Trustee Ordinance does not regulate trusts in Hong Kong (section 3 of the Trustee Ordinance specifically states that any of its provision can be ousted by the express terms of a trust). Moreover, there is surely no law anywhere on earth which is comparable to the MPFSO.

Section 204(1)(d)(iii)

Consider that it is not necessary for the Trustee to demonstrate experience in conducting business internationally, provided that the Trustee can demonstrate local experience and its ability to deliver the service in Hong Kong.

Section 204(3)

This section should be limited to MPF business. The Authority has no power to make regulations which affect other business.

Section 204(11)

This section as presently drafted is unworkable. It is permissible to provide in an agreement that it should be governed by Hong Kong law and the Hong Kong courts should have exclusive jurisdiction. Whether foreign courts would recognize these provisions is a matter of foreign law. A Hong Kong ordinance cannot stipulate that all disputes should be governed only by Hong Kong law.

Section 205

The definition of an Independent Director is too wide. As the section stands it would preclude a director who happened, by way of unit trust investment indirectly to hold shares of the trustee or its parent. Even if the Independent Director disposed of any financial interest at the time of his appointment, he would still not qualify because the section also excludes directors with past interest (financial or otherwise) in the Trustee.

In addition, this would preclude the directors from being compensated for their services as a director, by the trustee.

Section 206(a)

Is it intended to empower the Authority to require the parent company to top up the trustee’s paid up capital and net assets to $30 million or does it go further, e.g. to empower the Authority to require the parent company to subscribe for additional capital not exceeding $30 million even where the trustee’s net assets fall short of the $30 million requirement by a small margin?

Section 208

Add "or such longer period as the Authority may specifically allow" after "30 days".

Section 210(1)

The Authority should state a maximum time period within which the notice of approval will be issued.

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