Mandatory Provident Fund Schemes Examination

According to the Mandatory Provident Fund Schemes Ordinance, domestic employees who provide services within the employer’s residence are generally excluded from MPF coverage. This exclusion is based on the location where the services are rendered, not the nature of the services themselves. Therefore, a gardener working at the employer’s home is excluded, while a chauffeur employed by an individual is included because their services are not rendered at the employer’s residence. Similarly, employees entering Hong Kong under an employment visa with permission to stay for a period not exceeding 13 months are initially excluded from MPF coverage, but become covered after the first 13 months. Therefore, statements I and II are correct.

The Mandatory Provident Fund (MPF) system in Hong Kong has specific guidelines regarding who is covered. Let’s analyze each scenario:

I. Domestic employees providing services at the employer’s household are generally excluded from MPF coverage. This aligns with the MPF regulations that exempt domestic services rendered within a residential premise.

II. Employees entering Hong Kong under an employment visa with permission to stay for a period not exceeding 13 months are initially excluded from MPF for the first 13 months. If their stay is extended beyond 13 months, they become covered after that initial period.

III. Individuals working as hawkers who are not self-employed are generally covered by the MPF system, as they are considered employees.

IV. Overseas partners of a partnership engaging in business in Hong Kong are generally excluded from the MPF system.

Therefore, all of the above statements are correct.

According to the guidelines for registered intermediaries promoting MPF schemes, a principal intermediary must perform due diligence on promoted schemes and constituent funds before selling and marketing them, and regularly thereafter. This ensures subsidiary intermediaries stay informed about key aspects such as the involved parties, fees, investment policies, risk levels, terms, services offered, and operational matters. This ongoing process is essential for maintaining the quality of advice and service provided to clients, aligning with regulatory expectations for prudent conduct.

The Mandatory Provident Fund Schemes (General) Regulation (Cap.485A) outlines the detailed operational requirements and procedures for MPF schemes, including contribution arrangements, fund management, and member rights. It serves as a crucial supplement to the principal ordinance, providing specific guidance on how the MPF system functions in practice. This regulation is vital for ensuring compliance and proper administration of MPF schemes in Hong Kong. Understanding the specifics of Cap.485A is essential for IIQE exam candidates.

According to the guidelines for registered intermediaries in the context of the Mandatory Provident Fund (MPF) schemes, a principal intermediary must conduct product due diligence on any registered scheme and constituent fund it promotes or advises on. This due diligence should occur before selling and marketing the scheme or fund and continue regularly to ensure subsidiary intermediaries stay informed. This aligns with ensuring a good understanding of the scheme, as expected of a prudent person. Registered intermediaries should record the particulars of any order instructions relating to material decisions received from a client (including the date and time of receipt and details of the order). The records of orders should be kept by the principal intermediary for a minimum period of seven years. Registered intermediaries should also take reasonable steps to promptly and accurately carry out client instructions, notify clients after execution, and alert them to any delays or failures. Therefore, all of the above statements are correct.

According to the Mandatory Provident Fund Schemes Ordinance, a ‘contribution holiday’ applies to relevant employees (excluding casual employees). This means mandatory contributions are not required during the first 30 days of employment and any incomplete wage period immediately following. Contributions commence from the first complete wage period or calendar month starting on or after the 31st day of employment. Therefore, if an employee is employed on February 1st with a monthly wage period, the contribution period begins in March. This aligns with the regulations set forth by the HK IIQE exam syllabus, specifically concerning the commencement of mandatory contributions.

The MPF system in Hong Kong is designed as a mandatory, privately-managed, employment-based, fully-funded contribution system, aligning with the World Bank’s second pillar framework. This pillar emphasizes mandatory contributions managed by private entities to ensure retirement income. The MPF Schemes Ordinance, enacted in 1995, provides the legal framework for the MPF system. The MPFA is responsible for regulating and supervising MPF schemes. Therefore, statements I and II are correct.

According to the MPFSO, the date of contribution payment varies depending on the payment method. When paying by post, the contribution is considered paid on the date the payment cheque would normally be delivered by post. When paying in person through bank branches or customer service counters, the contribution is considered paid on the date the payment cheque is deposited. When using direct debit, the contribution is considered paid on the date the employer’s remittance statement is received by the trustee. When using direct credit, the contribution is considered paid on the date the MPF scheme’s bank account is credited. Therefore, statements I, II and IV are correct.

According to the Mandatory Provident Fund Schemes Ordinance, individuals employed in Hong Kong are generally covered by the MPF system. This includes employees in large catering establishments, recruiters in the construction industry who are employees of specialist contractors, substitute workers in the catering and construction industries, summer job workers, civil servants not entitled to pension benefits, local staff of Consulate General, and teachers and staff of private schools. Relevant income includes wages, salaries, bonuses (both discretionary and performance-linked), end-of-contract gratuities, cash allowances, internship allowances, and leave allowances. Reimbursements for expenses incurred by the employee for employment-related goods and services are not considered relevant income. Shareholders receiving only dividends and landlords receiving only rental income (without actively running a rental business) are not considered employees or self-employed persons and are therefore not covered by the MPF system. Understanding these distinctions is crucial for compliance with MPF regulations in Hong Kong.

Custodians of MPF schemes have critical responsibilities to safeguard scheme assets. They must prioritize the care of these assets, adhere to the custodial agreement, MPFA guidelines, and relevant regulations. Furthermore, they are required to maintain the necessary financial standing and meet all other stipulated requirements to ensure the security and proper management of MPF funds. Therefore, statements I, II and III are correct.

Individual trustees of MPF schemes in Hong Kong must meet specific requirements to ensure the protection of scheme members’ interests. These requirements include residency, good reputation, and the provision of a performance guarantee. The MPFA also conducts ongoing monitoring of trustee performance to ensure compliance with regulations.

Statement I is correct because individual trustees must ordinarily reside in Hong Kong and maintain a good reputation and character.

Statement II is incorrect because the performance guarantee required is a maximum of $10 million, not $5 million.

Statement III is correct because if an individual is appointed as a trustee, there must be at least two such trustees to provide a system of checks and balances.

Statement IV is incorrect because the MPFA uses various methods to monitor trustee performance, including off-site reviews, on-site visits, and handling complaints, not solely relying on annual audits. Therefore, statements I and III are correct.

According to MPF regulations, a constituent fund must maintain at least 30% of its assets in Hong Kong dollar currency investments. These investments should be denominated in Hong Kong dollars and their values should not be linked to foreign currencies. Currency forward contracts can be used to meet this requirement. Therefore, the scenario where a fund maintains 30% of its assets in HKD investments complies with the regulation.

Employers in Hong Kong have a legal obligation under the Mandatory Provident Fund Schemes Ordinance (MPFSO) to enroll their relevant employees in an MPF scheme. This responsibility includes making timely contributions on behalf of the employee and themselves. Failure to comply with these enrollment and contribution requirements can result in penalties. The MPF system is designed to ensure that employees have retirement savings, and the employer plays a crucial role in facilitating this.

Trustees of MPF schemes have a fiduciary duty to act in the best interests of scheme members and must adhere to the governing rules of the scheme. This includes providing scheme information, processing transfer and payment requests, and ensuring the funds are invested prudently. Trustees are accountable for their actions and decisions related to the scheme’s management. While trustees can appoint service providers, they remain responsible for overseeing their performance. All profits derived from trust properties must be transferred to the beneficiaries, ensuring that the scheme members benefit from the scheme’s financial activities. Therefore, all of the above statements are correct.

The Mandatory Provident Fund Schemes Ordinance (Cap. 485) is the primary legislation governing the MPF system in Hong Kong. The Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A) provides detailed rules and regulations for the operation of MPF schemes. The Code on MPF Investment Funds sets out the standards and requirements for MPF investment funds. The Guidelines on Licensing provide guidance on the application process for various approvals related to MPF schemes. Therefore, all of the above statements are correct.

According to sections 34ZL and 34ZM of Part IVA of the MPFSO, when carrying on a regulated activity, a principal intermediary or a subsidiary intermediary attached to a principal intermediary must act honestly, fairly, in the best interests of the client, and with integrity. They must also exercise a level of care, skill, and diligence that may reasonably be expected of a prudent person carrying on the regulated activity. Intermediaries should only advise on matters they are competent to advise on and must consider the client’s particular circumstances to ensure the regulated activity is appropriate for the client. Furthermore, they must disclose information necessary for the client to make informed decisions and avoid conflicts of interest, disclosing any such conflicts to the client. Client assets must be promptly and properly accounted for, and all other prescribed requirements must be complied with. Principal intermediaries are required to keep records of their activities and those of their subsidiary intermediaries to enable the frontline regulator to ascertain compliance with these requirements and must establish and maintain proper controls and procedures for securing compliance with Part IVA by themselves and their subsidiary intermediaries. Therefore, all of the above statements are correct.

The MPFA requires individual trustees to meet specific criteria to ensure the protection of scheme members’ interests. Individual trustees must reside in Hong Kong and maintain a good reputation. They are also required to provide a performance guarantee, such as an insurance policy or bank guarantee, to cover potential losses resulting from their failure to perform duties or any breach thereof. This guarantee must be equivalent to 10% of the scheme’s net asset value, up to a maximum of $10 million. Furthermore, if an individual is appointed as a trustee, there must be at least two such individual trustees to provide a system of checks and balances. The MPFA also conducts ongoing monitoring of trustee performance and compliance through various means, including off-site reviews, on-site visits, handling complaints, and requiring trustees to report significant events. Therefore, statements I, II and III are correct.

The Mandatory Provident Fund Schemes Ordinance empowers the MPFA to regulate various aspects of MPF schemes. This includes exempting certain individuals from contributing, approving and regulating MPF scheme trustees, overseeing sales and marketing activities related to MPF schemes, and making necessary amendments to other relevant ordinances. The MPFA also issues codes and guidelines, such as the Code on MPF Investment Funds and the Guidelines on Licensing, Reporting Requirements, and Investment, to ensure compliance and provide detailed operational guidance. Therefore, all of the above statements are correct.

Under the MPFSO, providing false or misleading information with intent to defraud during an MPFA inspection or investigation carries significant penalties. Specifically, conviction on indictment can result in a substantial fine and imprisonment for up to seven years. Summary conviction, a less severe legal process, still carries a notable fine and a shorter term of imprisonment. This highlights the importance of honesty and accuracy when dealing with MPFA inquiries. The penalties underscore the seriousness with which the MPFA treats attempts to deceive or obstruct its regulatory functions, aiming to protect the integrity of the MPF system and the interests of its members. Therefore, intentionally providing false information during an MPFA investigation can lead to a fine of $1,000,000 and imprisonment for 7 years.

According to the Mandatory Provident Fund Schemes Ordinance and related guidelines, a registered intermediary must conduct a suitability assessment to align a client’s risk profile with suitable constituent funds. This assessment involves understanding the client’s financial situation, investment objectives, risk tolerance, and investment knowledge. If a client insists on a fund with a risk level higher than their assessed profile, the intermediary should inform the client of the mismatch, explain the risks, confirm the client’s decision is their own, document the situation, and obtain the client’s acknowledgement via signature. The signed document should be provided to the client, and the original kept by the principal intermediary for at least seven years. The conversation regarding the risk mismatch should be audio recorded, or a post-sale call or confirmation implemented. Therefore, statements I, II and III are correct.

According to the MPFSO, a principal intermediary is permitted to conduct regulated activities as part of their business operations. This includes providing advice on MPF matters. Other entities, such as service providers or the MPFA, may also engage in regulated activities under specific circumstances outlined in the MPFSO, such as complying with legal requirements or performing their functions. However, the general prohibition against carrying on regulated activities without proper registration or exemption remains in place to ensure consumer protection and market integrity. Therefore, only principal intermediaries are explicitly allowed to carry out regulated activities in the course of their business.

The Mandatory Provident Fund (MPF) system in Hong Kong has specific regulations for casual employees in designated industries. Currently, the catering and construction industries are designated under these rules. A ‘casual employee’ in these industries is defined as someone employed on a day-to-day basis or for a fixed period of less than 60 days. According to the guidelines, food factories are included in the catering industry, and general building contractors are included in the construction industry. Therefore, statements I and II are correct.

A Type A regulatee, in the context of MPF intermediaries, refers to specific entities regulated by industry regulators like the Insurance Authority (IA), the Monetary Authority (MA), and the Securities and Futures Commission (SFC). For the IA, this includes companies authorized to carry on long-term insurance business or authorized long-term insurance brokers. For the MA, it includes authorized financial institutions registered under the Securities and Futures Ordinance (SFO) for Type 1 or Type 4 regulated activity. For the SFC, it includes corporations licensed under the SFO to carry on Type 1 or Type 4 regulated activity. Therefore, statements I, II and III are correct.

According to the Mandatory Provident Fund Schemes Ordinance, ‘relevant income’ includes wages, salary, leave pay, fees, commissions, bonuses, gratuities, perquisites, or allowances derived from employment. Let’s analyze each scenario:

I. Car subsidy (fuel and oil, maintenance expenses, payment of car registration and license fees for car owned by an employee): When the employer provides cash payment for the benefit of employee, it is considered relevant income.

II. Tips collected by the employer: Tips collected via the employer and service charges included in the bill (including amounts inserted by customers on credit card bills) which are subsequently distributed partly or fully to the employees are considered relevant income.

III. Holiday tour package: This is considered a non-monetary benefit and is not classified as relevant income.

IV. Payment in lieu of notice: Payment in lieu of notice does not fall within any of the nine heads (i.e. wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance) of relevant income. Therefore, statements I and II are correct.

Principal intermediaries in the HK IIQE framework are required to notify the MPFA of specific changes within a defined timeframe. This includes changes to their regulatory status, contact information, and the cessation of regulated activities. The notification period is strictly 7 working days from the date of the change. Failure to comply with this requirement without a valid reason can result in a fine. This requirement ensures the MPFA maintains accurate and up-to-date information on all registered intermediaries, facilitating effective regulation and supervision of the MPF system.

According to the guidelines for MPF sales, a post-sale call must be conducted by an authorized person from the principal intermediary, not the original subsidiary intermediary. This call aims to confirm the client’s fund choice and highlight any risk mismatch, ensuring the client made an informed decision. The call should occur within seven working days and be audio recorded. If the principal intermediary lacks an audio recording system, they should arrange for an authorized person from the approved trustee/sponsor/promoter to conduct the call. If the client cannot be reached, a document with the same information should be sent. The intermediary must also advise the client that the fund selection cannot be completed until the client has had further time to consider the matter and confirm instructions in writing no sooner than the next working day. Therefore, statements I and II are correct.

The MPF system in Hong Kong is designed as a mandatory, privately-managed, employment-based, and fully-funded contribution system. This aligns with the World Bank’s recommendation for a second-pillar system in retirement protection frameworks. The MPF Schemes Ordinance was indeed passed in July 1995, marking a significant step in establishing the MPF system. The non-contributory, publicly-financed and managed system that provides a minimal level of protection for retirement is considered Pillar Zero. Therefore, statements I and II are correct.

When a self-employed person enrolls in an MPF scheme, the permitted period is generally 60 days. However, if the last day of this period falls on a Saturday, public holiday, or a day with a gale warning or black rainstorm warning, the period is extended to the next day that is not one of these. The minimum and maximum relevant income levels are adjusted proportionally based on the number of days the person is a member of the MPF scheme within the financial period. The formula for calculating the adjusted minimum relevant income level is $85,200 x DC/365, and for the maximum level, it is $360,000 x DC/365, where DC is the number of days during the financial period of the scheme of which the self-employed person is a member. Therefore, statements I and II are correct.

According to the guidelines set forth by the MPFA for individual trustees of MPF schemes:

* Individual trustees must typically reside in Hong Kong and maintain a good reputation and character.
* They are required to provide a performance guarantee, such as an insurance policy or bank guarantee, to cover potential losses resulting from their failure to perform duties or any breach thereof. This guarantee should amount to 10% of the scheme’s net asset value, capped at $10 million.
* If an individual is considered for appointment as a trustee, there must be a minimum of two such individual trustees. Therefore, statements I and II are correct.

According to the guidelines for MPF sales, specifically VI.2, a post-sale call is a crucial step to ensure the client’s understanding and confirmation of their fund choices. This call must be made by an authorized person from the principal intermediary, different from the original subsidiary intermediary. The call’s purpose is to confirm the client’s fund selection, highlight any risk mismatch between the chosen fund and the client’s assessed risk profile, and verify that the fund choice was indeed the client’s own decision. This process ensures transparency and protects the client’s interests, aligning with the regulatory requirements for MPF sales activities in Hong Kong. The audio recording of the call, or written documentation if a call is not possible, must be retained for a minimum of seven years by the principal intermediary or the approved trustee/sponsor/promoter. This requirement ensures that there is a clear record of the communication and confirmation process, which can be reviewed by regulators if necessary.