Provisional Legislative Council

PLC Paper No. CB(1)737
(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, 11 December 1997, at 2:30 pm in Conference Room A of the Legislative Council Building

Members present :

Hon Ronald ARCULLI, JP (Chairman)
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon WONG Siu-yee
Hon James TIEN Pei-chun, JP
Hon LEE Kai-ming
Hon Henry WU
Hon CHAN Yuen-han
Hon CHAN Kam-lam
Hon Ambrose LAU Hon-chuen, JP
Hon CHOY So-yuk

Members absent :

Hon HO Sai-chu, JP
Hon Mrs Peggy LAM, 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

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 Geoffrey FOX
Senior Assistant Law Draftsman
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 Anita HO
Assistant Legal Adviser 2

Mr Daniel HUI
Senior Assistant Secretary (1)5

I Meeting with the Administration

Members continued the clause-by-clause examination of the proposed amendments to the Mandatory Provident Fund Schemes Ordinance (MPFSO) and deliberated on the following proposed sections.

Proposed section 30A

2. In reply to a member’s enquiry, the Assistant Director/Regulatory Standards (AD/RS) confirmed that under proposed section 30A, an authorized person of the MPF Schemes Authority (MPFA) could not enter premises being used as a private dwelling for the purpose of conducting inspection. To do so, the MPFA would need to be authorised by a search warrant issued by a magistrate in accordance with proposed section 32(3A).

3. On proposed section 30A(3), AD/RS explained that under normal circumstances, the MPFA would give prior notice to the occupier of the premises concerned before conducting an inspection. However, an authorized person might enter premises for the purpose of conducting inspections under proposed section 30A without giving notice if there was evidence that the case concerned was urgent, or if giving prior notice would defeat the purpose for which the inspection was intended.

4. On the need to define the circumstances which would justify whether "entry is required urgently", Senior Assistant Legal Adviser (SALA) remarked that from a drafting point of view, it would not be practicable to stipulate in law all possible scenarios and each case should be considered on its facts. Members also noted that the Senior Assistant Law Draftsman (SALD) would consider whether to improve the drafting by specifying that the entry under proposed section 30A(3)(a) should be related to a case in which there was reason to believe that provisions of the Ordinance had not been complied with.DJ

5. In reply to a member’s enquiry on the interpretation of "reasonable notice" under proposed subsection (3), SALD suggested that notice should normally be given not less than 24 hours before the inspection and that the inspection should be carried out at reasonable times such as during normal office hours.

6. In reply to the Chairman, the Administration confirmed that "records" referred to in proposed section 30A(4) would include computer records.

7. On the warrant of authority provided under proposed subsection (5)(a), AD/RS clarified that its main purpose was to enable the MPFA to authorize a person, who was not an employee of the MPFA but whose expertise would be needed for the investigation, to perform inspection duties. He further advised that the warrant of authorization was in fact a letter of authorization issued by the MPFA for enforcement purposes and would not confer on the person the same powers of a search warrant issued by a magistrate.

Proposed sections 33 to 33B

8. A member enquired whether there was any objectivity test for the expression "reasonably believes" in proposed section 33(1) in relation to MPFA’s power to suspend an approved trustee’s administration of a scheme. SALA advised that the term "reasonably believes" was commonly found in other pieces of legislation and that the requirement of "reasonableness" would provide an objective element in the MPFA’s considerations when it sought to invoke the power under proposed section 33. He elaborated that if challenged in court regarding its grounds for taking action under proposed section 33(1), the MPFA had to substantiate its belief about the trustee’s contravention of proposed section 33(1)(a) or (b) and the court would consider whether a reasonable man would have arrived at the same conclusion as the MPFA had. SALA therefore considered that there was a certain level of objectivity in the expression "reasonably believes".

9. Addressing members’ concerns about the adequacy of arrangements in safeguarding scheme members’ interests in case of suspension or termination of an approved trustee’s administration of a MPF scheme, the Administration provided the following clarifications :

  1. the power to suspend and terminate an approved trustee’s administration of a scheme would be used sparingly and only in absolutely necessary circumstances because such an action would have grave consequences on an approved trustee and the scheme members concerned;

  2. the MPFA would detect irregularities during regular inspections and, where necessary, require the trustee concerned to take remedial actions. Only if these efforts failed would suspension and termination be resorted to;

  3. if an approved trustee’s administration of a registered scheme was suspended, the MPFA would appoint as soon as practicable an administrator to take over operation of the scheme, such as collection of contributions, processing of portability and withdrawal cases and investment of funds, until the suspension was lifted or a replacement trustee appointed. The Administration’s intention was that there should be no time gap between the suspension of a trustee’s administration of a scheme and the appointment of a scheme administrator; and

  4. although proposed section 33A(2) required that a person appointed as an administrator must, as far as possible, be an approved trustee, leeway was provided in proposed section 33A(3) for the MPFA to appoint a person who was not an approved trustee to act as the administrator in case a suitable approved trustee could not be found, or no approved trustee was willing to act as the administrator. If necessary, a public officer could be appointed as a scheme administrator.

10. In reply to a member’s suggestion that an approved trustee be required to accept the appointment as an administrator if so appointed by the MPFA, AD/RS cautioned that such a requirement might not be in the interest of scheme members because an approved trustee might negotiate terms of appointment with the MFPA, thereby delaying the appointment and adversely affecting the continued operation of the scheme concerned.

11. As regards measures to protect scheme members’ interest in case of suspension of an approved trustee’s administration of a scheme, AD/RS stressed that the appointment of an administrator to take over the continued operation of a scheme was an interim arrangement to protect scheme members from possible losses arising from the cessation of operation of the scheme on suspension of an approved trustee’s administration.

Proposed sections 34 to 34C

12. Addressing a member’s concern about the time required in handling withdrawal cases if a scheme had to be wound up pursuant to a court order under proposed section 34A, the Assistant Director/Scheme Operations (AD/SO) advised that a MPF scheme under investigation or court proceeding could transfer or pay out MPF benefits upon completion of the valuation of loss on scheme assets which might only take a few weeks. The liquidator could then process portability and withdrawal cases in accordance with the valuation results. Moreover, to further protect scheme members’ interests, proposed section 17C required that interest must be added to the award of compensation from the Compensation Fund (CF). AD/SO supplemented that in cases of compulsory winding up and where there were losses in scheme assets resulting from illegal conduct and misfeasance, it was highly likely that winding up proceedings and the claims for payment from the CF would proceed in parallel.

13. In reply to the Chairman, AD/SO advised that a parent company consisting of several subsidiaries could operate one employer sponsored scheme to provide MPF coverage for employees in the parent company and the subsidiaries. She also advised that under proposed section 34B, the trustees of two or more employer sponsored schemes or master trust schemes might also apply to the MPFA for merger of schemes of the same kind into one single new scheme.

Proposed section 43

14. To remove doubt, a member suggested and the Administration agreed to introduce a Committee stage amendment (CSA) to the effect that the offence clause in subsections (1) and (2) should not apply to persons who were not approved trustees but who were appointed by the MPFA to act as scheme administrators on suspension or termination of an approved trustee’s administration of a scheme.Admin.

15. Members considered that carrying on business as an approved trustee without approval was a very serious offence and suggested that in line with the proposed penalty under sections 43A to 43C, imprisonment terms should be added to the penalty proposed under section 43(3). The Administration agreed to move a CSA to give effect to members’ suggestion.Admin.

Proposed sections 43A(4), 43B(4), 43C(2) and 43D(1)

16. In reply to members’ concern, the Administration would review the level of penalty under proposed sections 43A(4), 43B(4), 43C(2) and 43D(1) and consider whether they should be structured so that different levels of penalty would be applicable for first and subsequent convictions.Admin.

Proposed section 43B

17. Members noted that the Administration would move a CSA to delete "subsection (8) excepted" from proposed section 43B(1).Admin.

18. On proposed section 43B(2), the Chairman questioned the need for the proposed provision under subsections (2)(a) and (b) as the general failure to participate in a registered scheme and to make mandatory contributions was already prescribed an offence under proposed subsection (1). The Administration would further consider the proposed provisions and check whether comparable provisions existed under other pieces of legislation.Admin.

Proposed section 43C

19. The Administration would move a CSA to add a subsection (c) to proposed section 43C(1) to provide that it would be an offence for a self-employed person to fail to pay mandatory contribution. In reply to a member, AD/SO advised that the MPFA would first issue a warning letter to a self-employed person who, by virtue of his assessable profits stated in the Notice of Assessment issued by the Inland Revenue Department, should have, but had not, participated in a MPF Scheme. No action would normally be taken against the self-employed person if he participated in a MPF Scheme after receipt of the warning letter. However, if he failed to fulfil his statutory obligation without any reasonable excuse, prosecution might be taken out against him.Admin.

Proposed section 43E

20. In reply to SALA and members, the Administration would move a CSA to add the element of "recklessness" to the effect that a person who knowingly or recklessly made a statement which was false or misleading committed an offence under this proposed section.Admin.

Proposed provisions in subsidiary legislation concerning regulatory measures on overseas investments

21. In reply to members’ concerns about the wider issue of regulatory measures on investment managers of MPF Schemes in the management of global portfolio, AD/RS made the following points :

  1. as proposed in the draft subsidiary legislation, an investment manager of MPF Schemes could only delegate the investment management of foreign securities to its subsidiary or associate incorporated and operating outside Hong Kong;

  2. the stringent requirement in (a) above was proposed to protect scheme members’ interest; and

  3. in addition to appointing an investment manager without overseas subsidiary or associate company to manage local investments, the trustee could enter into an investment management contract with an investment company registered with the Securities and Futures Commission and which had an overseas associate company to manage the scheme’s overseas investments.

22. Members were concerned that the proposed requirement would be unduly in favour of large international companies and might disadvantage local investment management companies without any overseas network. At members’ request, the Administration would study the issue with a view to formulating proposals which could strike a reasonable balance between prudent investment practices and fair competition among investment companies in the future MPF market.Admin.

II Any other business

23. The Chairman reminded members that the next meeting of the Bills Committee would be held on Monday, 15 December 1997, at 10:45 am.

24. The meeting ended at 4:30 pm.

Provisional Legislative Council Secretariat
5 January 1998