Speech

LC: Second reading of Mandatory Provident Fund Schemes (Amendment) Bill 2001

Wednesday, February 6, 2002

Following is the speech by the Secretary for Financial Services, Mr Stephen Ip, in moving the second reading of Mandatory Provident Fund Schemes (Amendment) Bill 2001 (English translation) in the Legislative Council today (February 6):

Madam President,

Purposes of the Bill

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The Mandatory Provident Fund Schemes (Amendment) Bill 2001 seeks to amend the Mandatory Provident Fund Schemes Ordinance (the Ordinance) and its subsidiary legislations to enhance the smooth operation and effectiveness of the system that affects over 2 million employers, employees, self-employed persons and service providers, and to enhance the protection of scheme members' benefits.

The Bills Committee

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The Bills Committee chaired by the Honourable Ambrose LAU Hon-chuen held five meetings to scrutinize the provisions of the Bill and has offered many valuable comments. For this, I would like to thank Mr. LAU and members of the Bills Committee. I would also like to take this opportunity to thank the relevant professional bodies and the industry for their comments on the Bill. Having considered the comments of the Bills Committee and the industry, we agree that some areas of the bill would need to be amended and we therefore propose to amend the definition of "governing rules" in the Bill, and the provisions concerning MPFA's power to impose new or amend existing conditions as well as to borrow money. We also propose to make some technical amendments.

Governing Rules

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The Bill originally proposed to extend the definition of "governing rules" to include "offering document" and "participation agreement". However, the Bills Committee and the industry were concerned that such an arrangement might make the definition of "governing rules" too broad, and lead to duplication of functions between MPFA and other regulatory bodies. To improve the provisions of the Bill, we propose to keep the existing definition of "governing rules" in the Ordinance, and add the definitions of "offering document" and "participation agreement" to the Regulation. Moreover, we also propose to specify the circumstances under which the trustees have to seek the approval of MPFA before amending these documents. The revised arrangements will ensure that any amendments made will not affect the interest of the scheme members, and that the definition of "governing rules" will not be too broad.

Conditions imposed and amended by MPFA

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It is further proposed in the Bill to empower MPFA to impose or amend conditions on approved trustees and registered MPF schemes. The provisions seek to ensure that MPFA may impose appropriate conditions on the organizations and products under its supervision to meet any changes in the environment, thus protecting the interests of scheme members. As pointed out by Mr Lau When discussing the provisions, the Bills Committee and the industry have raised some queries. These include how MPFA will perform its functions, the nature of the new conditions as well as whether the industry will be given sufficient time to consider the amendments proposed by MPFA. In view of these, we decide to clarify in the Ordinance that any conditions imposed or amendments proposed have to be reasonable. Besides, if the conditions are related to the marketing of a registered scheme, they have to fall within the ambit of the guidelines issued by MPFA after consultation. We also accept the proposal of the industry to extend the period within which MPFA should give advance notice to an approved trustee of its decision to amend or impose conditions from 7 to 30 working days. This will give an approved trustee sufficient time to make changes or respond accordingly. In fact, MPFA must carry out its regulatory power reasonably, and the existing Ordinance has already provided an appeal mechanism to handle the appeal cases relating to the using of such power by MPFA.

The power of MPFA to borrow money

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The Bill proposes to empower MPFA to borrow money, for instance, by acquiring overdraft banking facilities to meet cash flow needs or contingencies. As Members considered it necessary to spell out the nature of loans, we propose to amend Clause 4 of the Bill to the effect that all loans should be short term and for specified purposes, such as dealing with an emergency or unexpected delay in the settlement of securities transactions.

Avoidance of duplication of functions among regulatory bodies

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In the course of discussing the Bill, both members of the Bills Committee and representatives of the industry have expressed concerns over the possible duplication of functions among MPFA and other regulatory bodies and the inconsistency in regulatory standards that may arise in the performance of their duties. Members put forth as examples, inter alia, the vetting of "offering documents" and the reserve requirements for guarantors of approved pooled investment funds. I appreciate Members' concern. In fact, there are very clear division of responsibilities between MPFA and other regulators. For example, the division of responsibilities between MPFA and the Securities and Futures Commission regarding vetting and approval of MPF products is set out clearly in the relevant Memorandum of Understanding. Similarity, MPFA will try to minimize duplication of efforts when cooperating with other regulators and to bring MPF products under consistent regulatory standards.

7.The other amendments are mainly technical or consequential. All amendments have been examined by the Bills Committee.

Conclusion

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The Mandatory Provident Fund Schemes (Amendment) Bill 2001, as amended, will enhance the operation of the Mandatory Provident Fund (MPF) legislation and better protect the interests of scheme members. I hope that Members will support the Bill and the amendments I will propose at the Committee Stage.

Thank you, Madam President.

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