MPF Intermediaries Qualifying Exam cheat sheet

The MPF System is a mandatory, privately managed, defined-contribution retirement savings system established under the Mandatory Provident Fund Schemes Ordinance (Cap. 485), which came into operation in December 2000.

Three pillars underpin retirement protection in Hong Kong: Pillar 1 = social security (comprehensive social security assistance and old age allowances); Pillar 2 = MPF and occupational retirement schemes; Pillar 3 = voluntary private savings and insurance.

The Mandatory Provident Fund Schemes Authority (MPFA) is the statutory regulator; it registers schemes, approves trustees and intermediaries, and supervises compliance. It does not manage funds itself.

Coverage is employment- and self-employment-based: generally employees aged 18 to under 65 and self-employed persons aged 18 to under 65 who are covered must be enrolled. Exemptions include certain domestic employees, self-employed hawkers and persons covered by statutory pension or provident schemes.

Employees with less than 60 days of employment in a relevant period may be exempt from mandatory contributions for that employment, but the employer must still enrol them if the employment continues beyond the threshold.

Mandatory contributions are 5% of relevant income from the employee and 5% from the employer, subject to the minimum and maximum relevant income levels set by the MPFA (currently minimum HK$7,100 per month and maximum HK$30,000 per month).

Voluntary contributions may be made as additional voluntary contributions or tax-deductible voluntary contributions (TVC); TVC are subject to a separate cap and tax deduction limits.

The system is portable: accrued benefits vest immediately and can be transferred between schemes on change of employment or upon termination of a scheme.

Primary legislation: Mandatory Provident Fund Schemes Ordinance (Cap. 485). Subsidiary legislation includes the Mandatory Provident Fund Schemes (General) Regulation, the (Exempted Schemes) Regulation, and the (Fees) Regulation.

The MPFA is established under Cap. 485 and is the statutory body responsible for regulating the MPF System; the Securities and Futures Commission regulates MPF products that are also SFC-authorised collective investment schemes.

The Occupational Retirement Schemes Ordinance (Cap. 426) governs occupational retirement schemes; MPF-exempted ORSO schemes must meet the requirements of the MPF Schemes (Exempted Schemes) Regulation.

Intermediaries must be registered with the MPFA as MPF intermediaries; individual agents must be licensed or registered under the applicable regulatory regime and pass the MPF Intermediaries Qualifying Examination or hold a recognised equivalent.

The MPF Schemes Ordinance imposes duties on approved trustees, including duties of care, skill and diligence, and requires trustees to act in the best interests of scheme members.

The Personal Data (Privacy) Ordinance (Cap. 486) and the Code of Practice on the Identity Card Number and other personal identifiers apply to the collection and use of client data during onboarding.

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and the MPFA's AML/CFT guidelines apply to MPF intermediaries, including customer due diligence and record-keeping obligations.

The MPFA has power to impose disciplinary sanctions, including fines, suspension or revocation of registration, and public censure, for breaches of the Ordinance and codes.

Master trust schemes are the predominant type: pooled schemes open to all eligible employees, self-employed persons and voluntary members, with multiple approved trustees and a range of constituent funds.

Employer-sponsored schemes are established by a single employer (or a group) for its employees; the employer selects the trustee and the scheme, and the scheme is not open to the general public.

Industry schemes are restricted to employees and self-employed persons in the catering and construction industries (including related trades); membership is limited to those sectors.

ORSO schemes are occupational retirement schemes regulated under Cap. 426; an ORSO scheme may be MPF-exempt if it satisfies the exemption criteria, including minimum benefit requirements.

A scheme must be approved by the MPFA before it can be operated; approval is granted to the approved trustee, not to the individual constituent funds.

Each scheme must have an approved trustee, a scheme investment policy, and a governing document; the trustee is responsible for appointing an investment manager and a custodian.

Constituent funds may be offered in different share classes; the trustee must ensure that the fund structure and fee disclosure comply with the MPF legislation and the MPFA's guidelines.

Default investment strategy (DIS) is a statutory feature available in every MPF scheme; it applies automatically where a member has not given investment instructions, and consists of a Core Accumulation Fund and an Age 65 Plus Fund.

MPF schemes may invest in a wide range of assets, but the General Regulation imposes concentration limits: generally no more than 10% of a fund's assets in securities of a single issuer, and no more than 10% in a single class of securities of an issuer.

Equity exposure is permitted, but a constituent fund must not hold more than 10% of its assets in shares of any one company, and there are limits on holdings in unlisted securities and in direct property.

A constituent fund may invest in approved pooled investment funds, including index-tracking funds, provided the underlying fund meets the requirements of the General Regulation.

Derivatives may be used for hedging purposes only, not for speculation; the trustee must ensure that the use of derivatives does not create leverage or disproportionate risk.

A constituent fund must maintain sufficient liquidity to meet redemption requests; the trustee must have a liquidity management policy and may impose restrictions in exceptional circumstances.

The investment policy of each constituent fund must be disclosed in the scheme's offering document, including the fund's objective, strategy, risk profile and benchmark.

The DIS comprises the Core Accumulation Fund (higher equity exposure, approximately 60% equity) and the Age 65 Plus Fund (lower risk, approximately 20% equity); the allocation automatically de-risks as the member approaches age 65.

A constituent fund's fees and charges must be disclosed in the offering document, including management fees, trustee fees, custodian fees, and any performance-based fees.

Mandatory contributions are 5% of relevant income from the employee and 5% from the employer, subject to the minimum and maximum relevant income levels; the maximum monthly relevant income for mandatory contributions is currently HK$30,000.

Relevant income includes wages, salary, leave pay, commission, bonuses, allowances and other payments in consideration of employment, but excludes certain items such as housing allowances and severance payments.

The employer must enrol a new employee within 60 days of the commencement of employment and must make the first mandatory contribution within 30 days after the end of the first contribution period.

Mandatory contributions must be paid to the trustee within 10 days after the end of the contribution period (generally the wage period); late payment attracts a surcharge and the employer may be liable to prosecution.

Accrued benefits vest immediately: an employee's mandatory contributions and the employer's mandatory contributions are fully vested in the member from the date they are paid.

Voluntary contributions may be made by the employee or employer; the trustee must maintain separate accounts for mandatory and voluntary contributions.

Self-employed persons must make mandatory contributions at 5% of relevant income, subject to the minimum and maximum levels, and must report their income to the trustee annually.

Contribution records must be kept by the employer for at least 7 years, and the trustee must issue an annual benefit statement to each member.

Accrued benefits must be preserved until the member reaches the retirement age of 65, unless an early withdrawal ground applies.

Portability: on termination of employment, the member may transfer accrued benefits from the previous scheme to a new scheme, to a personal account, or leave them in the previous scheme.

A personal account may be opened by a member who has accrued benefits in a scheme after leaving employment; the member may choose the trustee and the constituent funds.

Transfer requests must be made in the prescribed form and the trustee must process the transfer within the time specified in the General Regulation (generally within 30 days after receiving a valid request).

On termination of an ORSO scheme, accrued benefits may be transferred to an MPF scheme or to another ORSO scheme, subject to the scheme's governing rules and the preservation requirements.

A member may transfer accrued benefits between constituent funds within the same scheme, subject to the scheme's rules and any restriction on the frequency of transfers.

The trustee must provide the member with a transfer statement showing the amount transferred, the date of transfer and the receiving scheme.

Benefits transferred to a personal account remain subject to preservation until retirement age, unless an early withdrawal ground applies.

A member may withdraw accrued benefits in a lump sum upon reaching the retirement age of 65; the member may also choose to withdraw in instalments or leave the benefits invested.

Early withdrawal on the ground of permanent departure from Hong Kong: the member must provide a statutory declaration and evidence of departure, and may withdraw the accrued benefits in a lump sum.

Early withdrawal on the ground of total incapacity: the member must provide medical evidence certifying total incapacity, and may withdraw the accrued benefits.

Early withdrawal on the ground of terminal illness: the member may withdraw accrued benefits where a medical practitioner certifies that the member is terminally ill.

Small balance withdrawal: a member may withdraw accrued benefits if the balance is below the prescribed threshold (currently HK$5,000) and the member has no other MPF benefits.

Withdrawal on the ground of death: the accrued benefits are paid to the member's personal representative or to the beneficiary designated by the member.

The trustee must process a valid withdrawal request within the time specified in the General Regulation, generally within 30 days after receiving all required documents.

Withdrawal of accrued benefits does not affect the member's entitlement to other retirement benefits, such as social security allowances, subject to the relevant means tests.

An MPF intermediary must act in the best interests of the client, with due care, skill and diligence, and must not put its own interests ahead of the client's.

Suitability: the intermediary must assess the client's financial situation, investment objectives, risk tolerance and investment horizon before making any recommendation.

Know-your-client (KYC) requirements include verifying identity, address, and the source of funds, and understanding the client's investment experience and knowledge.

Disclosure: the intermediary must disclose all material information, including fees and charges, conflicts of interest, and the risks associated with the recommended products.

The intermediary must provide the client with the relevant offering document and the MPF scheme's key facts statement before the client makes an investment decision.

Client onboarding must include a risk profiling questionnaire and a suitability assessment; the intermediary must document the basis for the recommendation.

The intermediary must not accept any benefit, commission or inducement that could compromise its independence or create a conflict of interest, unless disclosed and consented to by the client.

Records of client onboarding, suitability assessments and recommendations must be kept for at least 7 years.

Marketing materials must be accurate, fair and not misleading; they must not contain any statement that is false or misleading in a material particular.

Prohibited conduct includes misrepresentation, fraud, unauthorized trading, and the use of high-pressure sales tactics.

An intermediary must not make unsolicited calls to clients outside permitted hours, and must comply with the Personal Data (Privacy) Ordinance when using client data for marketing.

Cold calling is subject to the opt-out regime under the Personal Data (Privacy) Ordinance; the intermediary must check the client's opt-out preference before making marketing calls.

The intermediary must not offer any gift, discount or incentive that is not disclosed in the offering document or approved by the trustee.

Comparative advertising must be fair and must not disparage competitors; any comparison must be based on verifiable facts.

The intermediary must not guarantee any investment return or promise any specific performance of a constituent fund.

Breach of the sales practice rules may result in disciplinary action by the MPFA, including fines, suspension or revocation of registration.

The MPFA supervises approved trustees and intermediaries through on-site inspections, off-site reviews, and thematic reviews.

Intermediaries must maintain compliance policies and procedures, including AML/CFT, suitability, and conflicts of interest policies.

Record-keeping: client records, transaction records and suitability assessments must be kept for at least 7 years.

The MPFA may impose disciplinary sanctions, including public or private reprimand, fines, suspension or revocation of registration, and prohibition from re-registration.

The MPFA may refer serious breaches to the police or the SFC for criminal investigation or regulatory action.

Intermediaries must report material breaches and complaints to the MPFA within the prescribed time.

The MPFA publishes a register of registered intermediaries and approved trustees, which the public can search.

Appeals against MPFA decisions may be made to the MPF Schemes Appeal Board, and further to the courts.

Constituent funds are categorized by asset class: equity funds, bond funds, mixed asset funds, money market funds, guaranteed funds and index-tracking funds.

The expense ratio of a constituent fund includes management fees, trustee fees, custodian fees and other ongoing expenses; it is disclosed in the fund's key facts statement.

The MPFA's fee comparison platform allows members to compare the fees and charges of different MPF funds.

Guaranteed funds may offer a guaranteed return, but the guarantee is subject to the terms and conditions set out in the offering document, including any conditions and limitations.

Index-tracking funds aim to track the performance of a specified index; they typically have lower management fees than actively managed funds.

The DIS uses a lifecycle approach: the Core Accumulation Fund has a higher equity allocation and the Age 65 Plus Fund has a lower equity allocation.

Fund selection should consider the member's risk tolerance, investment horizon, age and retirement goals, as well as the fund's fees and performance.

Past performance is not a reliable indicator of future performance; the offering document must include a warning to this effect.