ANNUAL REPORT 2018-19 · Annual Report 2018 19 T Mandatory Provident Fund Schemes Authority Level 8 , Tower 1, Kowloon Commerce Centre, 51 Kwa i Cheong Roa d, Kwai Chung, Hong Kong

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Level 8, Tower 1, Kowloon Commerce Centre,51 Kwai Cheong Road, Kwai Chung, Hong Kong

Hotline: (852) 2918 0102Facsimile: (852) 2259 8806E-mail: [email protected]

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ANNUAL REPORT 2018-19

MEMB

ERS F

IRST

Annual R

epo

rt 2018–19

Mand

atory P

rovident Fund

Schem

es Autho

rity

Level 8, Tower 1, Kowloon Commerce Centre,51 Kwai Cheong Road, Kwai Chung, Hong Kong

Hotline: (852) 2918 0102Facsimile: (852) 2259 8806E-mail: [email protected]

www.mpfa.org.hk MEMB

ERS F

IRST

ANNUAL REPORT 2018-19

Table of Content

2 A Snapshot of the MPF System

8 Chairman’s Statement

12 Deputy Chairman and Managing Director’s Review and Outlook

20 Corporate Governance

42 Business Operations

70 Our Organization

78 Corporate Social Responsibility

88 Financial Statements – MPFA

124 Financial Statements – Compensation Fund

146 Statistics

167 Appendices

A Snapshot of theMandatory Provident Fund (MPF) System

2 Mandatory Provident Fund Schemes Authority Annual Report 2018-19

Global Trend of Private Pensions

The MPF System came into operation on 1 December 2000 as the second pillar of the multi-pillar retirement protection framework in Hong Kong to help the workforce set aside savings for retirement.

The global trend of pension reforms is towards the development of second pillar systems (private pensions) to cope with an ageing population as government revenues are becoming less able to finance retirement promises. MPF is in line with the global trend.

How Good the MPF System is in Defending Your Future

Below is a snapshot of the MPF System with reference to an outcome-based assessment framework identified by the World Bank to evaluate the performance of a second pillar private pension system.

The five key outcomes are coverage, sustainability, security, adequacy and efficiency.

COVERAGE

SUSTAINABILITY

SECURITY

ADEQUACY

EFFICIENCY

A Snapshot of the MPF System 3

1 ORSO schemes are retirement schemes set up voluntarily by employers to provide retirement benefits for their employees.

Outcome 1: Coverage

Relating to maximizing the proportion of the working-age population participating in private pension schemes and the proportion of retirees receiving such financial support in retirement.

• The MPF System has very high enrolment rate.

Enrolment Rates of MPF Schemes

100%

80%

60%

40%

20%

0%31.3.2017 31.3.2018 31.3.2019

100%100%

68%

99% 100%

70%

100%100%

71%

Employers Relevant Employees

Self-employedpersons

Estimated figures.

• 84% of employed population is covered under MPF schemes, schemes that are governed by the Occupational Retirement Schemes Ordinance (ORSO)1, or statutory pension or provident fund schemes.

Employed Population by Type of Retirement Schemes (31.3.2019)

73%

11%

13%

Joined MPFschemes

Not required to joinany local retirement

schemes 2%

Should join but have not yet joined any MPF schemes

Joined otherretirementschemes

Percentages may not sum up to 100% due to rounding.


A Snapshot of the MPF System

Outcome 2: Sustainability

Relating to ensuring that the pension schemes are financially sustainable without placing burdens on government, employers, or workers for financing any shortfalls of under-funded schemes.

• The MPF System is sustainable by nature:– Universal coverage for employed population (except for exempt persons, e.g. domestic employees

and those aged above 65 or below 18)

– Privately managed and independent from government revenue or public financial resources

– Fully funded with dedicated assets to meet future pension benefits payable to members

– Defined contributions made by employers and employees

• MPF is gaining importance in the Hong Kong economy:

Net Asset Value of MPF Assets

MPF Assets as at end of the year (as a % of Hong Kong’s

Gross Domestic Product)

1,000

900

800

700

600

500

701.17

856.69893.3

31.3.2017 31.3.2018 31.3.2019

HK$ billion

40%

30%

20%

10%

0%2016 2017 2018

26%

32% 29%


Outcome 3: Security

Relating to minimizing the risk of loss or misappropriation of pension assets before they are withdrawn by members.

• Sound legal and financial systems: Hong Kong’s sound legal and financial systems serve as the backbone of the MPF System.

• MPF assets under trust: MPF schemes are managed and maintained under trust by MPF trustees. MPF assets are under the safe custody of qualified custodians and are kept separate from those of employers, MPF trustees and other service providers.

• Four-tier protection:

– Stringent approval and registration criteria of MPF trustees

– Professional indemnity insurance to be taken out by MPF trustees

– Robust supervision and regulation of MPF schemes by the Mandatory Provident Fund Schemes Authority (MPFA)

– Compensation Fund to compensate scheme members for any loss in MPF benefits attributable to misfeasance or illegal conduct committed by MPF trustees or any other persons concerned with the administration of MPF schemes


A Snapshot of the MPF System

Outcome 4: Adequacy

Relating to ensuring people accumulate retirement benefits that could protect them from poverty, allow them to share in increased prosperity and protect them from a severe drop in living standards at retirement, taking account of other sources of financial support.

• MPF alone is inadequate for retirement by design, as it is only one of the pillars under the multi-pillar retirement protection system in Hong Kong.

• MPF mandatory contribution rate2 is relatively low and the amount of mandatory contributions is limited by the minimum and maximum relevant income (RI) levels3.

• Value added by MPF over the years:

– Growth of MPF assets since the inception of the MPF System:

Growth of MPF Assets

1,000

800

600

400

200

012.2000 12.2005 12.2010 12.2015

HK$ billion

$893.3 billion(3.2019)

MPF Voluntary Contributions (as a % of Total MPF Contributions)

12,000

10,000

8,000

2,000

6,000

4,000

02016 2017 2018

9,487(14%)

10,411(15%)

11,595(16%)

HK$ million

$640.8 billion(72%)

Investment returns

(net of fees and charges) MPF contributions

(net of amount withdrawn)

$252.5 billion (28%)

Total net asset value:

$893.3 billion

2 Currently, an employee and his/her employer are each required to contribute 5% of the employee’s relevant income (RI) as MPF mandatory contributions for and in respect of the employee.

3 An employee whose RI is less than the minimum RI level is not required to make MPF mandatory contributions. An employee and an employer are not required to make MPF mandatory contributions in respect of the amount of RI in excess of the maximum RI level.

– Growth of MPF voluntary contributions over the years:


4 The return of the MPF System was calculated by way of the internal rate of return (IRR), a method commonly known as dollar-weighted return. The IRR method, which takes into account the amount and timing of contributions into and benefits withdrawn from the MPF System, was used as it better reflects the features of cash inflow and outflow of the MPF System. The annualized IRR was calculated by raising the monthly IRR to the power of 12.

5 Fund Expense Ratio was first introduced in July 2007. It is a ratio that measures the expenses of an MPF fund as a percentage of fund size based on data from the most recently ended financial period. The higher the ratio, the higher the percentage of expenses to fund size.

Outcome 5: Efficiency

Relating to maximizing net-of-fee returns by improving investment performance subject to acceptable risks.

2016-17 2017-18 2018-19

9.7%

14.9%

-1.8%

-5%

0%

5%

10%

15%

20%

Annualized rate of return 4 (net of fees and charges)

7.2007 3.2019

2.06%

1.52%

0%

1%

2%

3%

26%

Trend of Average FER of MPF Funds

Since Inception of the MPF System (1.12.2000 - 31.3.2019): 4.0%

• The overall return of the MPF System mirrors the conditions of the financial market and scheme members’ collective investment choices among the MPF fund types.

• Individual scheme members’ MPF savings outcomes hinge on their own investment decisions and are reported in their Annual Benefit Statements. MPF is a long-term investment and can take advantage of the dollar-cost averaging mechanism to smooth out the effect of market fluctuations.

• The average Fund Expense Ratio (FER) 5 of MPF funds has decreased over the years by 26% from July 2007 to March 2019.

Mandatory Provident Fund Schemes Authority Annual Report 2018-198

David Wong

Chairman’s Statement

Chairman’s Statement 9

How to provide income security for the elderly in an increasingly ageing world - this is a challenge common to all countries.

At the Global Forum on Private Pensions hosted by the Organisation for Economic Cooperation and Development/International Organisation of Pension Supervisors in Beijing in October 2018, pension supervisors around the world exchanged their views on how to tackle this challenge.

On that occasion, I shared the experience of Hong Kong in implementing the MPF System, one of the first few mandatory defined contribution systems in the world.

I am very much encouraged by the fact that the importance of the MPF System in tackling the challenges of an ageing population is recognized by international experts.

Suited to Scheme Members’ Needs

System design

International studies show that the global trend of pension reforms is gearing towards the development of private pensions as government revenues are becoming less able to finance retirement promises. As a privately managed retirement savings system, the MPF System is in line with this international trend.

The defined contribution arrangement makes the MPF System financially sustainable. With contributions made by employers and employees, the System is fully funded with assets dedicated to meet future retirement benefits payable to scheme members, unaffected by the credit risks of the employers or the Government.

The MPF System is especially suitable for Hong Kong, a small and open economy facing the emerging problem of an ageing population due to a low fertility rate and long life expectancy.

As at the end of March 2019, $893.3 billion of assets have been accumulated in the MPF System, of which 72% ($640.77 billion) were contributions (net of amounts withdrawn) and 28% ($252.53 billion) were investment returns (net of fees and charges).

Amounting to the equivalence of 74% of Hong Kong’s fiscal reserves, these are concrete assets that can provide basic support for scheme members upon retirement.


Chairman’s Statement

Making MPF Better

Amount of savings

The MPF System is designed to meet basic retirement needs. Mandatory contribution rates are relatively low. More savings on top of the mandatory portion are necessary to enhance retirement protection.

Through education, we encourage scheme members to make voluntary contributions to accumulate more savings for retirement. MPF trustees also offer incentives to attract voluntary contributions. The proportion of voluntary contributions as a percentage of total contributions has increased from 12% to 16% over the past 10 years.

The much welcomed introduction of tax deductible voluntary contributions, coupled with trustees’ related promotional offers, is expected to further encourage people to save more for their retirement under the System.

Fees

With decentralized administration of schemes, cumbersome administration processes and a high volume of paper-based transactions, the administration costs of the MPF System have been high.

By streamlining administrative processes to reduce costs and facilitating the working of market forces, MPFA has endeavoured to bring down the level of fees. Trustees have also reduced fees over the years.

The latest initiative to develop an eMPF Platform to support the scheme administration of all trustees will simplify and automate administration and reduce operating costs, allowing greater room for fee reduction in the long run.

Returns

MPF investments have generated reasonable returns so far. For the period from 1 December 2000 to 31 March 2019, the annualized rate of

Investment arrangement

The MPF System helps scheme members develop investment discipline and set aside small sums regularly for their retirement reserves. With a small amount of contributions every month, scheme members are able to invest in quality markets and diversified portfolios through stringently regulated financial products managed by major financial institutions.

To ensure that the investment options are suitable for the vast majority of scheme members, investment regulations are prudently drawn up.

Good Outcomes

The MPF System is doing well by international standards.

In 2016, the World Bank developed an Outcome Based Assessment Framework for Private Pensions for monitoring and evaluating privately managed pension systems. Under the framework, the five key ultimate outcomes of a pension system are efficiency, sustainability, coverage, adequacy and security.

As discussed above, the MPF System is sustainable by design. In terms of coverage, MPF schemes now cover 100% of employers and employees, and around 70% of self-employed persons. Underpinned by sound legal and financial systems in Hong Kong and the MPF regulatory and supervisory regime, the MPF System is highly secured, with members’ assets and interests safeguarded.

Adequacy and efficiency are areas in which we need to catch up. There have always been public concerns expressed about MPF being insufficient for retirement and about fees and returns of MPF funds.

Minded to improve the MPF System for scheme members’ benefit, MPFA puts in great efforts to fill these gaps. These efforts are complemented by the industry’s endeavours to act in the best interest of scheme members.

Chairman’s Statement 11

return (net of fees and charges) of the MPF System as a whole was 4%, higher than the 1.8% annual inflation rate over the same period.

With a long investment horizon, retirement savings are particularly vulnerable to the volatility of the financial markets. The introduction of the Default Investment Strategy since 1 April 2017 seeks to provide a retirement solution that balances the long-term trade-offs between risk and return.

As fiduciaries, trustees also play a part in safeguarding scheme members’ interests in this respect. They can help monitor the investment performance of constituent funds under their MPF schemes, and promptly take appropriate actions where persistent underperformance is identified.

Fundamental Reform

The project to build an eMPF Platform for MPF scheme administration will help automation and enhance operational efficiency. Over the long term, it is anticipated to reduce overall administration costs of trustees through more efficient infrastructure and processes.

The platform will make it convenient for scheme members to manage their own MPF accounts. Standardization of scheme administration tasks and automation will also reduce the time and efforts of employers in managing MPF transactions and records.

With enhanced transparency, the platform will facilitate open competition, making more room for further fee reduction.

The project is not simply about building an electronic platform. It will change the manner in which the MPF System has been operating for two decades. This entails a lot of changes to all stakeholders involved, including employers, scheme members, trustees, other service providers, as well as MPFA.

To make the project a success, the support of all stakeholders as well as the public are essential.

Acknowledgements

It has always been my firm belief that MPFA is not just a regulator supervising the operation of the MPF industry. Its most important role is to proactively serve the public and protect scheme members’ interests.

In charting the course of the organization in fulfilment of this role, I am fortunate to have the unfailing support of a dedicated Board that provides great insights on strategic issues, and the valuable advice of the MPF Schemes Advisory Committee and the MPF Industry Schemes Committee.

As we move into the development phase of eMPF by way of preparing for the Platform, I must express my heartfelt appreciation to the Government for its full support for the project. I am grateful that the industry has shown great commitment and actively contributed ideas regarding the future operation of the platform.

My special thanks go to members serving on the Steering Committee on the Centralized Platform Project, who will play a significant role in providing steer to this important initiative that will change the entire MPF ecosystem and ultimately benefitting over 4 million scheme members.

Finally, my sincere appreciation goes to the staff members of MPFA who, under the leadership of the Managing Director, Ms Alice Law, discharge their duties with enthusiasm and professionalism. On top of their usual regulatory and supervisory work, many of them have taken on additional workload to support the preparation for the eMPF Platform project. To them I owe a big thank you.

David Wong Yau-karChairman


As this is my first report to you as Managing Director, I would like to begin by expressing how much I appreciate the opportunity to serve MPFA and to lead it forward during a period of transition and renewed promise for the organization.

Although I have been Managing Director for only a relatively short period of time, I have been serving as Chief Operating Officer and Executive Director of MPFA since July 2012. I look forward to contributing the insights I have gained towards creating a more robust and dynamic MPF System for the benefit of the Hong Kong working population.

The year at a glance

The 2018-19 year was a challenging one, due primarily to volatility in the markets. Local stock prices underwent a sharp correction during 2018, and the Hang Seng Index closed the year 2018 at 25 846. This represented a drop of 22% from its peak of 33 154 in January 2018.

Given the high concentration of MPF assets in equities, the market value of all MPF assets reached a record high of $893 billion (net of fees) at the end of January 2018. Nevertheless, this was adversely affected by corrections in global stock markets and declined to $813 billion (net of fees) at the end of 2018. By the end of March 2019 it had recovered to $893 billion, demonstrating the high degree of resilience built into the MPF System.

Challenges and changes

During the year, we continued to work on an unprecedented project, the eMPF Platform, which will substantially change the MPF System for the better. A Steering Committee was set up under the Management Board to provide strategic guidance and general oversight on the progress and deliverables of this project.

The eMPF is a trailblazing reform that will bring about a revolutionary change in the MPF ecosystem through the implementation of new technology and innovative solutions. The aim of this reform is to standardize and automate MPF scheme administration processes so as to enhance the user experience and create additional room for cost and fee reductions.

Alice Law

Deputy Chairman and

Managing Director’s Review and Outlook

Deputy Chairman and Managing Director’s Review and Outlook 13


Deputy Chairman and Managing Director’s Review and Outlook

One of the main reasons for this initiative is the need to streamline the MPF System. Since their adoption at the beginning of the century, MPF administration processes and procedures have been decentralized and operated individually by trustees. This has resulted in an extremely complex and paper-intensive system, with many operational inefficiencies and high administrative costs.

In his Policy Address of January 2017, the former Chief Executive announced that the Government would render its full support for an eMPF Platform. Then, in mid-2018, Government gave us the task of formulating a proposal for the development of this platform by 2022.

In March of this year, we issued a request for information with the aim of understanding the existing market better and gathering expertise on how to develop the platform. By the time of this writing, we had received a substantial number of positive responses from local, regional and global financial services providers and technology companies. We are pleased to see that many organizations with the capability of building large-scale financial infrastructure have shown interest in the project.

The next step, later in 2019, will be to call for proposals on building the eMPF Platform and operating it.

In addition to maximizing operational efficiency and creating a predominantly paperless MPF experience, the eMPF Platform would allow greater competition on a more level playing field. Service providers would have to win customers by offering better products and services.

Why is this so important? It’s not just because we saw the need for a more efficient electronic infrastructure. We also wanted to reform the existing MPF System and bring about a new MPF ecosystem that allows scheme members to enjoy a trouble-free method of saving for their retirement.

Once the MPF scheme administration has been standardized and automated, opportunities will arise for reducing costs further and paving the way for future reforms.

Undoubtedly, the implementation of this project will pose a huge challenge. It also means that our role will change as we will be responsible not only for overseeing the regulatory functions of the MPF System but also, as the owner of the eMPF Platform through a wholly-owned subsidiary, for facilitating the administration of all MPF schemes.

Now that we have started on the design and planning of the project, it will require our undivided attention as it is unparalleled in scope and significance. Our energetic MPFA team, with their expertise and intimate knowledge of the MPF System and readiness to embrace new technology, is well positioned to take the reform forward and transform the MPF System.

The team responsible for implementing the eMPF Platform is itself transforming to meet the challenges ahead but without disrupting MPFA’s existing work and people-centric culture. We as an institution will also need to instigate our own change management and prepare ourselves to become a more agile, dynamic and adaptive organization as we roll out the platform in the years to come.


Default Investment Strategy

Launched in 2017, the Default Investment Strategy (DIS) was developed to standardize the default arrangements of MPF schemes. Its net effect since then has been to lessen the impact of market volatility on members’ savings by reducing their exposure to investment risk as they approach retirement age.

The DIS has served the purpose for which it was intended, and we have seen steady growth in the participation rate. As at end of March 2019, around 1.9 million accounts (about 20% of the total number of MPF accounts) were partly or fully invested according to the DIS or were invested in its two constituent funds.

What’s more, the management fee cap (0.75%) on DIS funds will likely have a benchmarking effect, which will enhance competition among other MPF funds and ultimately lead to additional fee reductions. Since the passage of the DIS legislation in May 2016 up to the end of March 2019, a total of 138 MPF funds have reduced their fees.

Later in 2019, we will start work in preparation for a review of the fee cap.

Transparency project

To increase transparency among MPF trustees, we have launched a repository of MPF scheme documents (including offering documents, fund fact sheets and annual consolidated reports) on our MPFA website. We have also required MPF trustees to provide commentaries on the performance of their respective funds in a standardized format and asked operators of MPF schemes to disclose a breakdown of the management fees they charge.

In a similar vein, during the year we made preparations for launching an MPF Fund Platform that amalgamates four separate online platforms (Fund Performance Platform, Fee Comparative

Platform, DIS Fund List, Low Fee Fund List) into one. This new MPF Fund Platform, which shows the management fee breakdown of all MPF funds, went live on 29 April 2019 on our MPFA website.

Supervision

All of the initiatives that I have just outlined — enhancing transparency and delivering value-for-money, member-centric products and services — are made possible with the support of the industry, which has responded to our call to put members’ interests first.

I am pleased to report we have already seen a number of trustees include “value for money” and “member-first” core values in their business plans. They have also started to refine their fund investment structures to achieve better cost-effectiveness.

Some have also set aside significant budgets to upgrade and revamp their MPF administration system for greater efficiency and an improved member experience through the use of electronic communication channels. A few trustees have also committed to reducing fees.

For our part, we built or enhanced our electronic systems so that MPF intermediaries can make submissions and payments electronically.

As we want to help MPF intermediaries provide a higher standard of service, in 2018-19 we organized two series of train-the-trainer workshops and industry briefings for over 1 000 attendees.

Also during the year, we called on the industry to support our public campaign of raising awareness of the need to save more for retirement through tax deductible voluntary contributions (TVCs). By making contributions under the TVC, scheme members can enjoy tax concessions and benefit from the lower fee levels offered by the industry.


Deputy Chairman and Managing Director’s Review and Outlook

We will continue to encourage MPF trustees to propose new retirement products in future that provide better risk-adjusted returns over the entire investment horizon of their scheme members.

Public education and engagement programmes

On a broader front, we carried out a number of public education programmes in 2018-19. These were designed to increase scheme members’ knowledge of MPF and help them choose value-for-money MPF schemes and funds that meet personal needs and achieve long-term growth. We also encouraged members to take a more active role in managing their MPF investments.

During the year, we held over 110 talks that reached more than 10 000 people, including members of the public, civil servants, employees, employers and human resources practitioners. In schools, we organized talks, workshops and on-campus activities. Around 5 000 students of tertiary institutions and over 3 000 secondary school students were reached through these activities.

Additionally, we produced a number of public education and publicity videos and posted them on the MPFA Facebook fan page, online media and mobile platforms, each of which attracted millions of views.

Enforcement

During the year, we continued to offer prompt assistance to employees of businesses that defaulted on MPF contributions, closed down or went into liquidation so as to safeguard their MPF interests.

The amount of MPF contributions in arrears that we recovered on behalf of employees in 2018-19 came to $172 million. Over 50 employers and directors of limited companies were convicted of offences of failure to make MPF contributions for their employees or failure to enrol their employees in MPF schemes.

We also continued to protect MPF scheme members by taking action against non-complying MPF intermediaries, who were reprimanded, disqualified or had their registration suspended for contravening regulatory requirements.

Our continued commitment to excellence

At MPFA, we have always looked for ways to “work smarter” with finite resources, notwithstanding the increasing demands on our services by MPF scheme members and employers. As at the end of March 2019, we employed 552 staff members, representing a drop of some 12% from our manpower at the peak a few years back.

During the reporting year, our staff continued to provide excellent quality, high value-for-money services to over 4 million scheme members. What’s more, despite tight resource constraints and a lack of recurrent income, in 2018-19 we achieved many of our strategic objectives and delivered key initiatives.

This has been made possible by exercising stringent financial discipline, optimizing operational efficiency, automating our internal workflow and, even more importantly, adhering to our overarching principle of putting scheme members first.

A few words of thanks

As MPFA celebrates its 20th anniversary, I would like to pay tribute to our outstanding team of people who have dedicated a good part of their professional lives and careers to MPFA. Even though we were short-handed during the year, our staff made the extra effort to maintain our quality of service and contributed 1 700 hours of their own time towards volunteer service in 2018-19. Their commitment has strengthened the organization in many ways, and I am immensely grateful for their contributions.


I would like to take this opportunity to express our gratitude to our Chairman, Dr David Wong, for his leadership and wisdom in the way he steered MPFA to meet rising challenges. At the same time, I would like to thank the members of the Management Board, and the committees and working groups under the Board. Without their hard work, we could not have achieved so much in the continuing development of the MPF System.

I would also like to thank the chairmen and members of the MPF Schemes Advisory Committee and Industry Schemes Committee, whose support and advice have been indispensable to us.

Special thanks go to retiring members of the Management Board and the two advisory committees for their staunch support. To the newcomers, I extend a warm welcome.

For helping to develop and reform the MPF System, and particularly for their valuable assistance on the eMPF initiative, I would like to thank the Government for its guidance and the industry for their cooperation.

Also greatly appreciated are the other financial regulators who work closely with us in supervising the MPF industry as well as our partners in the labour unions, business chambers, employer and human resources bodies and others, who in the course of their work have helped to make MPF better.

Finally, I would like to express my deepest gratitude to my predecessor, Mrs Diana Chan, who has laid such a strong and solid foundation for the Authority to build on.

Together with my fellow Executive Directors and colleagues at MPFA, I will take the organization forward in the year ahead and work to improve the MPF System to safeguard the interests of scheme members.

Alice Law Shing-muiDeputy Chairman and Managing Director

Executive Directors of MPFA

From left to right:

Ms Gabriella Yee, Executive Director (Policy)

Mr Cheng Yan-chee, Chief Corporate Affairs Officer and Executive Director

Ms Alice Law, Deputy Chairman and Managing Director

Ms Cynthia Hui, Executive Director (Members)

MEMBERS FIRSTProtect scheme members’ interests

Corporate Governance


Ext

erna

l Sta

keho

lder

s

Feedback

Communication

Statutory Advisory Committees

• MPF Schemes AdvisoryCommittee

•

Guidance

Appointment

Appointment

Appointment

Recommendation,Reporting

Reporting

Reporting

Reporting

Consultation

Advice

Internal Audit

External Audit

Advice

Management

Supporting Committees

External Auditor

Internal AuditFunction

* Remuneration Committee makes recommendation to the Government

HKSARGovernment

MPFAManagement Board

Appointment,Delegation

Recommendation,Reporting

• Administration Committee

• Audit Committee

• Finance Committee

• Guidelines Committee

• Remuneration Committee *

• Steering Committee on the Centralized Platform Project

• Tender Board

• Working Group on MPF Reform Issues

MPF Industry SchemesCommittee

The MPFA contributes to the sustainable development of the second pillar of the retirement protection system in Hong Kong through regulating, supervising and improving the MPF System. In fulfilling this role, we are committed to high standards of corporate governance to promote fairness and ethical conduct and ensure accountability and transparency in our operations. We also strive to enhance the governance standards of our regulatees in the best interests of scheme members. Work in this respect is reported in the Business Operations section.

The MPFA’s corporate governance framework and practices are in line with the requirements of the Mandatory Provident Fund Schemes Ordinance (MPFSO) and the governance principles and best practices recommended for public bodies.

Governance Structure

The Management Board

Role and responsibilities

The Management Board is responsible for determining key corporate strategies and policies, overseeing the delivery of planned programmes, endorsing the corporate plan and budget of MPFA, and ensuring that MPFA’s operations are conducted prudently and within the framework of applicable laws, regulations and policies. It gives directions to the executives of MPFA for the administration of MPFA’s affairs and delegates the management of day-to-day operations to the executives.

Corporate Governance 21

Dr David Wong Yau-kar, GBS, JP

Dr Bankee Kwan Pak-hoo, JP

Hon Abraham Shek Lai-him, GBS, JP

Mrs Ayesha Macpherson Lau, JP

Mr Kingsley Wong Kwok, JP

Prof Simon Wong Kit-lung, JP

Mr Chan Kam-lam, GBS, JP

Membership (31.3.2019)

Ms Yvonne Cheng Wai-sum, SC

ChairmanDr David Wong Yau-kar, GBS, JP(from 17 Mar 2015; current term expires on 16 Mar 2021)

• Chairman, Remuneration Committee, MPFA• Chairman, Steering Committee on the Centralized Platform

Project, MPFA• Chairman, Working Group on MPF Reform Issues, MPFA• Deputy, the National People’s Congress• Member, Financial Leaders Forum• Member, Chief Executive’s Council of Advisers on Innovation

and Strategic Development• Member, Exchange Fund Advisory Committee• Independent non-executive director of a number of listed

and non-listed companies

Non-executive DirectorsHon Abraham Shek Lai-him, GBS, JP(from 17 Mar 2015; current term expires on 16 Mar 2021)

• Chairman, Tender Board, MPFA• Member, Legislative Council• Member, Court of The Hong Kong University of Science

and Technology• Member, Council and Court of The University of Hong Kong• Member, Advisory Committee on Corruption of Independent

Commission Against Corruption• Independent non-executive director of a number of Hong

Kong listed companies

Mr Kingsley Wong Kwok, JP(from 17 Mar 2015; current term expires on 16 Mar 2021)

• Member, 13th National Committee of the Chinese People’s Political Consultative Conference

• Member, Hainan Committee of the Chinese People’s Political Consultative Conference

• Chairman, The Hong Kong Federation of Trade Unions (HKFTU)

• Chairman, HKFTU Workers’ Medical Clinics• Vice-Chairman, Service Industry General Unions

Mr Chan Kam-lam, GBS, JP(from 17 Mar 2017; current term expires on 16 Mar 2021)

• Chairman, Administration Committee, MPFA• Member, National Committee of the Chinese People’s

Political Consultative Conference (2003-18)• Member, Legislative Council (1995-2016)• Member, Council of The Hong Kong Polytechnic University

(2012-18)• President, Kingrich Asia Holdings Limited• President, Kingrich Trading Limited• Director, Shenyang Wuai World Enterprise Company Limited



Mr Lam Chun-sing

Mr Cheng Yan-chee

Mr James Henry Lau Jr, JP

Ms Cynthia Hui Wai-yee

Dr Law Chi-kwong, GBS, JP

Ms Alice Law Shing-mui

Ms Gabriella Yee Gar-bo

Dr Bankee Kwan Pak-hoo, JP(from 17 Mar 2017; current term expires on 16 Mar 2021)

• Chairman & CEO, Celestial Asia Securities Holdings Limited (CASH Group)

• Board Member, Hong Kong Retail Management Association• Deputy Chairman, Business Facilitation Advisory Committee

(BFAC); Convenor, Wholesale and Retail Task Force of BFAC

• Member, Election Committee for the Fourth and Fifth Term of the Chief Executive Election of Hong Kong Special Administrative Region

• Standing Committee Member and Deputy Convener (HK & Macau Members), Shanghai Committee of the Chinese People’s Political Consultative Conference

• Executive Vice President, Hong Kong-Shanghai Economic Development Association

Mrs Ayesha Macpherson Lau, JP(from 17 Mar 2017; current term expires on 16 Mar 2021)

• Chairman, Audit Committee, MPFA• Partner, KPMG China; Managing Partner, Hong Kong,

KPMG• Chairman, International Fiscal Association Hong Kong

Branch• Member, Joint Liaison Committee on Taxation• Member, Financial Infrastructure and Market Development

Sub-Committee, Exchange Fund Advisory Committee, The Hong Kong Monetary Authority

• Member, Public Service Commission• Member, Council of The University of Hong Kong• Chairman, Joint Committee on Student Finance• Member, Legal Aid Services Council• Accounting Advisor, Ministry of Finance, the People’s

Republic of China

Prof Simon Wong Kit-lung, JP(from 17 Mar 2017; current term expires on 16 Mar 2021)

• Chairman, Finance Committee, MPFA• Chairperson and Chief Executive Officer, LH Group• Adjunct Professor, College of Business of City University of

Hong Kong • President, Institution of Dining Art • Chairman, Catering Industry Training Advisory Committee • Vice-Chairman, Employees Retraining Board • Member, Business Facilitation Advisory Committee - Food

Business and Related Services Task Force • Member, Commission on Poverty

Ms Yvonne Cheng Wai-sum, SC(from 1 Oct 2018; current term expires on 30 Sep 2020)

• Chairman, Guidelines Committee, MPFA• Senior Counsel, Hong Kong• Recorder of the Court of First Instance of the High Court• Member, Securities and Futures Appeals Tribunal Panel• Member, Financial Reporting Review Panel• Chairman, Appeal Tribunal Panel (Buildings)

Mr Lam Chun-sing(from 17 Mar 2019; current term expires on 16 Mar 2021)

• Chairman, The Federation of Hong Kong and Kowloon Labour Unions

• Member, Protection of Wages on Insolvency Fund Board• Member, Steering Committee on Qualifications Framework

Fund• Member, Employees Retraining Board


Mr Horace Wong Yuk-lun, SC, JP(Retired as from 1 Oct 2018)

Hon Poon Siu-ping, BBS, MH(Retired as from 17 Mar 2019)

Mrs Diana Chan Tong Chee-ching, JP(Retired as from 1 Jul 2018)

Secretary for Financial Services and the Treasury(from 1 Jul 2002; current term expires on 16 Mar 2021)

Mr James Henry Lau Jr, JP(The incumbent since 1 Jul 2017)• Under Secretary for Financial Services and the Treasury

(2014-17)• Chief Executive Officer, Hong Kong Mortgage Corporation

(2004-12)• Head and Executive Director of various divisions, Hong

Kong Monetary Authority (1993-2004)• Administrative Officer (AO) to AO Staff Grade C in the

Administrative Service, Hong Kong Government (1979-93)Alternate: Permanent Secretary for Financial Services and the Treasury (Financial Services)

Secretary for Labour and Welfare(from 1 Jul 2007; current term expires on 16 Mar 2021)

Dr Law Chi-kwong, GBS, JP(The incumbent since 1 Jul 2017)• Member, Commission on Poverty• Chairperson, Community Care Fund Task Force• Previously Associate Professor, Department of Social Work

and Social Administration, The University of Hong Kong• Member, Legislative Council (1995-97, 1998-2004)Alternate: Permanent Secretary for Labour and Welfare

Executive Directors

Ms Alice Law Shing-muiDeputy Chairman and Managing Director(from 1 Jul 2018; current term expires on 30 Jun 2021)

• Chief Operating Officer and Executive Director, MPFA (2012-18)

• Member, Preparatory Committee for the Establishment of the Academy of Finance of Hong Kong Monetary Authority (2018-19)

• Solicitor, Hong Kong (a partner specializing in corporate and commercial practice in a Hong Kong law firm before joining the public sector in 1998)

• Member, Global Future Council on the Future of Financial & Monetary Systems of World Economic Forum

• Member, Products Advisory Committee, Securities and Futures Commission

• Senior Fellow, Hong Kong Securities and Investment Institute

• Director to Senior Director positions at Securities and Futures Commission, with last position as Senior Director (Policy, China & Investment Products) (2004-12)

• Non-executive Director, Hong Kong Securities Institute (2004-08)

Mr Cheng Yan-cheeChief Corporate Affairs Officer and Executive Director(from 3 Apr 2013; current term expires on 2 Apr 2022)

• Member, Board of Directors of Investor and Financial Education Council (since 2013)

• Deputy Secretary for Home Affairs, Hong Kong Special Administrative Region Government (HKSARG) (2011-12)

• Deputy Secretary for Financial Services and the Treasury, HKSARG (2007-11)

• Deputy Director-General of Trade and Industry, HKSARG (2006-07)

• Deputy Secretary for Education and Manpower, HKSARG (2001-06)

• Deputy Director of Information Technology Services, HKSARG (1999-2001)

Ms Cynthia Hui Wai-yeeExecutive Director (Members)(from 1 Feb 2008; current term expires on 31 Jan 2020)

• Qualified actuary• Fellow of the Institute of Actuaries of Australia• Member, Advisory Committee on Human Resources

Development in the Financial Services Sector (2011-13)• Chief Supervision Manager, MPFA (2006-08)• Advisor (Insurance Affairs), MPFA (2005-06)• Held Appointed Actuary, Chief Actuary and Regional

Actuary positions in multi-national insurance firms, and positions with responsibilities for information technology in major financial institutions in Australia before joining MPFA

Ms Gabriella Yee Gar-boExecutive Director (Policy)(from 25 Mar 2017; current term expires on 24 Mar 2020)

• Head (Policy Development and Research), MPFA (2011-17)• Chief Manager (Policy Development and Research), MPFA

(2008-11)• Senior Manager, MPFA (1999-2008)• Held various positions in the insurance/retirement benefits

sector before joining MPFA

Members who retired in 2018-19:



Composition

The composition of the Management Board is governed by the MPFSO. It is to consist of not fewer than 10 directors, a majority of whom must be non-executive directors (NEDs). As at 31 March 2019, the Management Board consists of 11 NEDs and four executive directors (EDs).

Directors on the Board are appointed by the Chief Executive of Hong Kong Special Administrative Region (HKSAR) or, under delegated authority, the Financial Secretary of HKSAR. All directors are appointed for a specific term.

The terms and conditions of office of the directors are determined by the Chief Executive of HKSAR or, under delegated authority, the Financial Secretary of HKSAR.

The Remuneration Committee considers and makes recommendations to the Government regarding the remuneration of EDs. NEDs are not remunerated. The remunerations of individual directors are disclosed on pages 117 to 118.

Responsibilities of directors

With diverse expertise, experience and background, the directors exercise due care and diligence to oversee MPFA’s performance.

NEDs provide insights, bring in independent judgment and maintain objectivity in the Board’s decision-making process, and give the Board the benefit of their skills and knowledge. EDs are responsible for the management of executive functions and day-to-day operations.

Chairman and Managing Director

The positions of Chairman and Managing Director are held by different persons and their roles are segregated. The Chairman is an NED providing the Management Board and MPFA with leadership and strategic direction, while the Managing Director is an ED and the administrative head responsible for executing the direction of the Management Board and administering the affairs of MPFA.

Induction

Newly appointed directors are given briefings and information packages to familiarize them with the MPF System and the work of MPFA. Apart from monthly progress reports on various aspects of work of MPFA, directors are provided with information and briefings on specific issues when necessary to facilitate informed decisions.

Board processes

Board processes adopted and documented in MPFA’s Standing Orders facilitate directors’ effective participation in Board business. Key elements include:

• Meetings are held as often as necessary, usually six to eight meetings a year;

• Telephone conferencing is arranged for directors who cannot attend meetings physically;

• Any director may propose a matter for discussion at Board meetings;

• Agendas and papers are issued to directors well in advance of a meeting;

• The Secretary to the Management Board keeps minutes of meetings recording the directors attending, matters discussed and decisions made;

Directors’ Profile

Category

NED 11 (73%)ED 4 (27%)

Years of service on MPFA Board

Less than 3 years 9 (60%)3-6 years 4 (27%)More than 6 years 2 (13%)


• Draft minutes are sent to all directors for comments within a reasonable time; and

• Directors are required to observe procedures for declaration of interests and reminded of the same at meetings.

The Secretary to the Management Board is responsible for ensuring that Board policy and procedures are followed and facilitating information flow within the Board.

Management of conflicts of interest

Directors are required to make a general disclosure of their interests, such as remunerated directorship and employment, on appointment to the Management Board, review the disclosed information on an annual basis, and notify the Secretary to the Management Board promptly of any changes.

Directors are also required by legislation to report the nature of a pecuniary interest in a matter placed before the Management Board if the interest appears to raise a conflict with the proper performance of the director’s duties in relation to the consideration of the matter. Particulars of the disclosure made at Management Board meetings are recorded in a register available for public inspection.

Gender

Male 10 (67%)Female 5 (33%)

Professional expertise/experience

Business/Finance 5 (33%)Accounting/Actuary 3 (20%)Public administration 3 (20%)Legal 2 (13%)Labour affairs 2 (13%)

The above requirements also apply to members of committees set up by the Management Board, including members who are not directors.

Management Board business in the year

The Management Board held seven meetings in 2018-19. The average attendance rate was 91%. In addition, 39 papers were circulated for decision or information.

Key matters considered include:

Governance

• Establishment of Steering Committee on the Centralized Platform Project

• Membership of supporting committees and statutory advisory committees

Planning and performance monitoring

• Annual corporate plan and budget• Half-yearly and annual reviews of corporate plan• Monthly progress reports• Annual financial statements• Investment performance and investment strategy

review of Capital Grant to MPFA and MPF Schemes Compensation Fund

Strategies and operations

• The eMPF Platform project• Review of minimum and maximum relevant

income levels• Automatic Exchange of Financial Account

Information for MPF and ORSO registered schemes

• Expansion of electronic service for MPF intermediaries

• Revisions to industry guidelines

Human resources

• Appointment and re-appointment of Directorate staff

• Annual salary review• Review of pay structure and pay-related

practices• Provision of maternity leave

The attendance rates of individual directors at meetings are provided on page 32.



Statutory Advisory Committees

MPF Schemes Advisory Committee (31.3.2019)

Hon Ip Kwok-him, GBM, GBS, JP

Mr Karson Choi Ka-tsan, BBS

Hon Kenneth Leung Kai-cheong

Mr Philip Tsai Wing-chung, BBS, JP

Mr Lee Wing-man

Ms Alice Law Shing-mui Ms Chow Yuen-yee

Dr Pan Pey-chyou, BBS Ms Winnie Wong Chi-shun

Mr Emil Yu Chen-on, JP

Chairman

Hon Ip Kwok-him, GBM, GBS, JP(from 1 Nov 2018; current term expires on 31 Oct 2020)

Member, Executive Council

Deputy Chairman

Ms Alice Law Shing-mui(from 1 Jul 2018; current term expires on 30 Jun 2021)

Deputy Chairman and Managing Director, MPFA

Member

Mr Karson Choi Ka-tsan, BBS(from 30 Mar 2017; current term expires on 29 Mar 2021)

Vice Chairman, Early Light International (Holdings) Limited

Ms Chow Yuen-yee(from 30 Mar 2017; current term expires on 29 Mar 2021)

Founder and Chairperson, CP Solutions Limited

Hon Kenneth Leung Kai-cheong(from 30 Mar 2017; current term expires on 29 Mar 2021)

Member, Legislative Council

Dr Pan Pey-chyou, BBS(from 30 Mar 2017; current term expires on 29 Mar 2021)

Former Vice President, The Hong Kong Federation of Trade Unions

Mr Philip Tsai Wing-chung, BBS, JP(from 30 Mar 2017; current term expires on 29 Mar 2021)

Chairman, Deloitte China

Ms Winnie Wong Chi-shun(from 30 Mar 2017; current term expires on 29 Mar 2021)

Chief Executive Officer, Asia Insurance Company Limited

Mr Lee Wing-man(from 30 Mar 2019; current term expires on 29 Mar 2021)

District Councillor, Sham Shui Po District

Mr Emil Yu Chen-on, JP(from 30 Mar 2019; current term expires on 29 Mar 2021)

Member, Labour Advisory Board


Hon Wong Ting-kwong, GBS, JP(Retired as from 1 Nov 2018)

Mrs Diana Chan Tong Chee-ching, JP(Retired as from 1 Jul 2018)

Mr Lam Chun-sing(Retired as from 30 Mar 2019)

Dr Roy Chung Chi-ping, GBS, JP(Retired as from 30 Mar 2019)

Role and composition

The MPF Schemes Advisory Committee is established under the MPFSO. It advises MPFA on the operation of the MPFSO and the effectiveness and efficiency of MPFA. It comprises an ED designated by MPFA and at least nine (but no more than 11) other members appointed by the Chief Executive of HKSAR.

Members who retired in 2018-19:

Committee business in 2018-19

During the year, the Committee held three meetings (average attendance rate: 77%). Members gave advice on the review of the minimum and maximum relevant income levels, the eMPF Platform project and the proposed corporate plan of MPFA for 2019-20. The Committee also received progress reports on various aspects of MPFA’s work.



MPF Industry Schemes Committee (31.3.2019)

Dr Roy Chung Chi-ping, GBS, JP

Mr Kwok Wang-hing Mr Wong Ping Mr Chan Pak-kan

Mr Yu Chak Ming

Mr Lee Yuen-hong

Mr Kenneth Cheung Tat-fai

Mr Rayman Chui Man-wai

Chairman

Dr Roy Chung Chi-ping, GBS, JP(from 25 Aug 2016; current term expires on 24 Aug 2020)

Co-founder and Non-executive Director, Techtronic Industries Company Limited

Member

Mr Kwok Wang-hing(from 25 Aug 2014; current term expires on 24 Aug 2020)

Chairman, Eating Establishment Employees General Union

Mr Wong Ping(from 25 Aug 2014; current term expires on 24 Aug 2020)

Chairman, Hong Kong Construction Industry Employees General Union

Mr Chan Pak-kan(from 25 Aug 2016; current term expires on 24 Aug 2020)

Chairman, Construction Site Workers General Union

Mr Lee Yuen-hong(from 25 Aug 2016; current term expires on 24 Aug 2020)

Chairman, Hong Kong Federation of Restaurants and Related Trades Limited

Mr Kenneth Cheung Tat-fai(from 25 Aug 2018; current term expires on 24 Aug 2020)

Vice Secretary, Hong Kong Construction Sub-Contractors Association

Mr Rayman Chui Man-wai(from 25 Aug 2018; current term expires on 24 Aug 2020)

President, Institution of Dining Art

Mr Yu Chak Ming(from 25 Aug 2018; current term expires on 24 Aug 2020)

Vice-chairman of Federation of Hong Kong Food & Beverage Industries Trade Unions

Mr Eddie Lam Kin-wing(from 17 Dec 2018; current term expires on 24 Aug 2020)

First Vice-President, Hong Kong Construction Association

Mr Adrian Li Man-kiu, JP(from 25 Aug 2006; current term expires on 24 Aug 2020)

Director, Bank of East Asia (Trustees) Limited

Mr Eddie Lam Kin-wing

Mr Adrian Li Man-kiu, JP


Mr Tang Ka-hin(Retired as from 25 Aug 2018)

Mr Cyras Chin Chi-keung(Resigned as from 21 Aug 2018)

Mr Lawrence Ng San-wa, MH(Retired as from 25 Aug 2018)

Prof Simon Wong Kit-lung, JP(Retired as from 25 Aug 2018)

Mr Johnson Wong Ho-shun

Mr Cheng Yan-chee

Mr Johnson Wong Ho-shun(from 25 Aug 2016; current term expires on 24 Aug 2020)

Business Director, BCT Financial Limited

Mr Cheng Yan-chee(from 3 Apr 2013; current term expires on 24 Aug 2020)

Chief Corporate Affairs Officer and Executive Director, MPFA

Members who resigned/retired in 2018-19:

Role and composition

The MPF Industry Schemes (IS) Committee is established under the MPFSO to monitor the effectiveness of IS and advise on ways to improve their administration and operation. It comprises a chairman, representative(s) of the trustee of each IS, and at least six other persons, including persons representing employees and employers, all appointed by the Financial Secretary of HKSAR. An ED is designated by MPFA to sit on the Committee.

Committee business in 2018-19

During the year, the Committee held four meetings (average attendance rate: 90%), at which members advised on the operation of IS. It discussed measures to handle MPF accounts with incomplete information under IS, results of a review of the operational issues of the IS and proposals arising from the review. The Committee also received reports on IS related enrolment, administration, enforcement, and public education and publicity matters.



Delegation of Functions by the Board

The MPFSO provides that MPFA Management Board may delegate its functions to a committee it establishes or to a director or employee of MPFA.

A number of committees, chaired by NEDs, are set up by the Management Board to give advice and assistance to the Management Board. Their terms of reference and membership lists are set out in Appendix 1.

Committee/Working group Composition Summary of work in 2018-19

Audit Committee 3 NEDs Held two meetings (average attendance rate: 83%) considered six papers by circulation Matters considered include:

– appointment of external auditor for financial years 2019-20 to 2021-22

– the financial statements of MPFA and the MPF Schemes Compensation Fund for 2017-18

– the half-yearly financial reports for 2018-19– progress update of three-year internal audit programme for

financial years 2017-18 to 2019-20– update on implementation progress of audit recommendations– internal audit reports on the following subjects:

– payroll operations and staff costs supervision– fixed assets recording and its financial reporting– general ledger and financial close controls– payment to third parties and re-imbursement to staff– compliance with the Personal Data (Privacy) Ordinance

(Cap 486)– compliance with information technology security policies– case assignment for member claims and investigation– on-site inspection for trustees– monitoring on implementation of records management

policies and procedures (retention scheduling of electronic records maintained in a centralized document repository)

Administration Committee

3 NEDs and 2 EDs

Held four meetings (attendance rate: 100%) Considered one paper by circulation Considered various human resources matters including:

– mid-year review of manpower plan for 2018-19 and manpower plan for 2019-20

– pay-related matters for non-directorate staff– improvement of maternity leave provision for staff– re-appointment of directorate staff


Committee/Working group Composition Summary of work in 2018-19

Finance Committee

3 NEDs and 2 EDs

Held three meetings (attendance rate: 100%) Considered three papers and received seven papers for

information by circulation Matters considered include:

– hedging equity market risk– performance of external fund managers, master custodian, the

Capital Grant and the MPF Schemes Compensation Fund– review of investment guidelines– half-yearly financial reports for 2018-19– revised budget for 2018-19 and proposed budget for 2019-20

Guidelines Committee

1 NED, 1 ED and 6 co-opted members

Held one meeting (attendance rate: 75%) Considered three papers by circulation 15 sets of revised Guidelines were issued, mainly to:

– support the implementation of tax deductible voluntary contributions which commences operation on 1 April 2019

– enhance the presentation of information and risk disclosure in the offering documents of MPF schemes

– re-classify all investments in a real estate investment trust authorized by the Securities and Futures Commission as “higher risk assets” for default investment strategy purposes

– reflect the approval of a central securities depository– reflect the approval of a futures exchange established in a

place outside Hong Kong 77 sets of Guidelines and two Codes were in force as at

31 March 2019 to provide guidance on the legislative requirements and operational arrangements of the MPF System

Remuneration Committee

4 NEDs Held one meeting (attendance rate: 100%) Considered two papers by circulation Assessed the performance of directorate staff and considered

their remuneration matters

Steering Committee on the Centralized Platform Project

7 NEDs, 4 EDs and 1 other member

Held one meeting (attendance rate: 92%) Matters considered include:

– Progress of the eMPF Platform Project– Proposed release of Request for Information for the eMPF

Platform Project

Tender Board 2 NEDs and 1 ED

No meeting was held during the year Considered one paper by circulation in relation to the provision of

group insurances for MPFA staff

Working Group on MPF Reform Issues

6 NEDs Held one meeting (attendance rate: 100%) Deliberated the following matters:

– whether further study on allowing members to withdraw their MPF benefits to buy their first home should be pursued

– whether a subsidiary company under MPFA should be set up to own and operate the eMPF Platform



The table below sets out the attendance of individual directors at Management Board, Committee and Working Group meetings in 2018-19:

Management Board

Audit Committee

Administration Committee

Finance Committee

Guidelines Committee¹

Remuneration Committee

Steering Committee

on the Centralized

Platform Project¹

Working Group on

MPF Reform Issues

Number of meetings held during the year 7 2 4 3 1 1 1 1

Attendance of directors

Dr David Wong Yau-kar 7/7 4/4 3/3 1/1 1/1 1/1

Mr Horace Wong Yuk-lun2 1/3 0/0

Hon Poon Siu-ping3 6/7 4/4

Hon Abraham Shek Lai-him 5/7 1/1

Mr Kingsley Wong Kwok 5/7 2/2 1/1 1/1

Mr Chan Kam-lam 7/7 4/4 3/3 1/1 1/1 1/1

Dr Bankee Kwan Pak-hoo 7/7 1/2 1/1 1/1

Mrs Ayesha Macpherson Lau 6/7 2/2 1/1

Prof Simon Wong Kit-lung 6/7 3/3 1/1 0/1 1/1

Ms Yvonne Cheng Wai-sum4 4/4 1/1

Mr Lam Chun-sing5 0/0

Secretary for Financial Services and the Treasury 7/76 1/17

Secretary for Labour and Welfare 6/78 1/19

Ms Alice Law Shing-mui 7/7 3/3 3/3 1/1

Mr Cheng Yan-chee 7/7 4/4 3/3 1/1

Ms Cynthia Hui Wai-yee 7/7 1/1

Ms Gabriella Yee Gar-bo 7/7 1/1 1/1

Mrs Diana Chan Tong Chee-ching10 1/1 1/1 0/0

(The Tender Board did not hold any meeting in 2018-19)

Notes:

1 Members who are not directors are not included in this table

2 Retired with effect from 1 Oct 2018

3 Retired with effect from 17 Mar 2019

4 Appointed with effect from 1 Oct 2018

5 Appointed with effect from 17 Mar 2019

6 Seven meetings attended by alternate director

7 One meeting attended by alternate member

8 Five meetings attended by alternate director

9 One meeting attended by alternate member

10 Retired with effect from 1 Jul 2018


Accountability and Transparency

Corporate planning

Before the end of each financial year, MPFA submits a corporate plan and budget for the following year to the Financial Secretary of HKSAR, specifying the objectives for the year, the nature and scope of the planned activities and the estimated expenditure for achieving the objectives.

The progress of implementation of the corporate plan is monitored and reviewed by the senior management and Management Board. The results of a full year review of the corporate plan are submitted to the Financial Secretary of HKSAR.

Reporting

We deliver an annual report, together with audited financial statements and auditor’s report, to the Financial Secretary of HKSAR each year.

Our annual report for 2017-18 won a Silver Award under the Non-profit Making and Charitable Organizations category at the 2018 Best Annual Reports Awards of the Hong Kong Management Association. We were also awarded a Special Mention under the Public Sector/Not-for-profit category of the Hong Kong Institute of Certified Public Accountants (HKICPA)’s Best Corporate Governance Awards 2018.

Financial reporting

Directors are responsible for the preparation of the financial statements that give a true and fair view of MPFA’s affairs. The financial statements comply with the accounting standards, reporting standards and interpretations promulgated by the HKICPA.

The financial statements are audited by an external auditor. The appointment of MPFA’s external auditor is subject to the approval of the Financial Secretary of HKSAR, on the recommendation of the Management Board. PricewaterhouseCoopers continued to be MPFA’s external auditor for the financial year 2018-19.

During the financial year, the auditor’s remuneration for audit services provided to MPFA and the MPF Schemes Compensation Fund amounted to HK$0.26 million and HK$0.11 million respectively.

Investment

The MPFA has appointed external fund managers to manage its investment portfolios in accordance with the Investment Guidelines approved by the Management Board. The performance of external fund managers is regularly reviewed by MPFA. The external fund managers have confirmed that they adopt the Principles of Responsible Ownership1 in managing the Hong Kong equity portfolios.

In support of the Government’s initiatives to promote green finance, MPFA has advised the external fund managers to incorporate green bonds, which are designated bonds intended to support climate-related or other types of special environmental projects, as an option for consideration in their investment decision process.

1 A set of Principles of Responsible Ownership was issued by the Securities and Futures Commission in March 2016 to provide guidance to assist investors in meeting their ownership responsibilities in relation to their investments in Hong Kong listed companies for strengthening the corporate governance culture in Hong Kong. Adoption of the Principles is voluntary.



Code of conduct for staff

MPFA attaches great importance to the integrity and conduct of its staff and expects them to behave in a way consistent with the expectations for public officers with high standard of integrity and conduct.

To ensure that staff understand and observe the relevant standards, requirements and expectations, MPFA has put in place a code of conduct, covering various issues such as acceptance of advantages, conflicts of interest, declaration of financial interests, post-service employment restriction, etc.

Staff are reminded of the requirements set out in the Code from time to time through various internal communication platforms such as emails, circulars, etc. In addition, new staff are required to attend briefing sessions on prevention of bribery and the Code conducted by the Independent Commission Against Corruption and the Human Resources Department.

Communication with stakeholders

We maintain two-way communication with stakeholders to deliver information to and collect feedback from them in relation to the MPF System. This is done through effective means, including:

• MPFA’s online platforms (websites, Facebook, Instagram, LinkedIn and mobile applications)

• media events and press releases• outreach programmes• hotline and enquiry counters• publicity and public education activities,

briefings, seminars and talks• publications such as the quarterly Statistical

Digest and MPFA Newsletter

Apart from direct contact, we make good use of online channel in our communication efforts.

During the year, MPFA received and processed 18 requests made under its Code on Access to Information.

Handling complaints

The roles and policies of MPFA on handling complaints against employers, MPF trustees, MPF intermediaries, ORSO employers or administrators, and MPFA or MPFA staff are made available on the website of MPFA.

Statistics on complaints received in the year and the nature of these complaints are set out on pages 165 to 166.


Performance pledges

We endeavour to deliver expeditious and client-oriented services in handling public enquiries and complaints. The achievement of performance standards in 2018-19 is set out in the table below.

Service Service standardPerformance

achieved

2018-19 2017-18

Call centre service (Hotline 2918 0102)

Answering hotline enquiries and messages

Answer hotline enquiries within 3 minutes under normal circumstances (i.e. not more than 600 incoming calls a day)

98.93% 98.44%

Reply hotline voice mail messages within the next working day

100% 100%

Answering written enquiries Acknowledge receipt within 3 working days 100% 100% Answer enquiry or provide an interim reply

within 10 working days100% 100%

Acknowledging receipt of complaints

Acknowledge receipt within 3 working days 100% 100%

Complaints investigation

Making initial contact with complainant by Case Officer

Contact complainant within 7 working days from the date of receiving a complaint

100%* 99.72%#

* Covers complaints relating to employers, MPF trustees, MPF intermediaries and ORSO trustees/ORSO administrators/ORSO employers# Covers complaints relating to employers



Risk Management and Internal Controls

The MPFA’s risk management and internal control systems are designed to manage and mitigate the risk of failure to achieve corporate goals and objectives. Risk management is integrated with the MPFA’s internal control system which is developed based on the principles of the Internal Control – Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO Framework 2013), but with due consideration given to our organizational structure and operation nature.

Three lines of defence

Our risk management and internal control structure meets with a best practice model known as the “Three Lines of Defence Model”. It reinforces the MPFA’s risk management capabilities and risk and control culture across all divisions and departments.

Internal Audit Assurance

Risk Management and Oversight

Operational Management

InternalControls

3rd Line of Defence

Audit Committee

Senior Management

2nd Line of Defence

1st Line of Defence


First line of defence: operational management and internal controls

At the operational management level, internal controls are designed and integrated into systems and processes of day-to-day operations.

All divisions and departments conduct regular reviews on their operational manuals and ensure compliance with internal operational policies and procedures by their staff.

A team of adequate and experienced staff in possession of accounting expertise and relevant qualifications is responsible for the financial reporting and accounting functions.

Second line of defence: risk management and oversight

The MPFA has adopted a well-structured risk management framework to assist the risk owners in identifying and managing risks in a systematic manner.

Through an integrated top-down and bottom-up risk review process, risk items in MPFA can be effectively identified and prioritized for monitoring by different levels of management according to the risk levels. An open and effective communication channel is also maintained to ensure timely escalation of top risks and reporting of latest risk exposures and mitigation measures.

A corporate level risk register and a divisional/departmental level risk register for each division/department are maintained for ongoing monitoring of treatment plans of identified risks, and are reviewed and updated annually during the corporate planning process.

To maintain continuity of our critical business functions at times of contingency and disaster, we have put in place a set of policies and procedures to set out the roles and responsibilities of the management and divisions/departments concerned in the monitoring and handling of crises.

These guidelines, together with divisional/departmental business continuity plans, are made available in a business continuity plan database for convenient access by staff.

Third line of defence: internal audit assurance

The Risk Management Unit, reporting directly to the Managing Director and the Audit Committee, provides independent assurance on the effectiveness of governance, risk management and internal controls of MPFA, including the manner in which the first and second lines of defence achieve the risk management and internal control objectives. The Unit is well-resourced with competent staff and has unhindered access to operational information for discharging its duties.

Through a risk-based audit approach, the Unit assesses the effectiveness of internal controls of the organization according to the guidelines and standards on internal audit promulgated by the HKICPA. The COSO Framework 2013 is also adopted to assess the five major components of internal controls, namely, control environment, risk assessment, control activities, information and communication, and monitoring activities.



Internal audit exercises are conducted according to a three-year internal audit programme endorsed by the Audit Committee. Findings are reviewed by the senior management and reported to and considered by the Audit Committee, which reports to the Management Board to ensure the highest level of independence and objectivity.

This year, nine audits covering several important processes as set out on page 30 were conducted and reported to the Audit Committee. The results of these audits showed that control systems in respect of the areas examined were generally adequate and

effective, and relevant procedures were generally complied with. Further enhancement opportunities were identified during the exercises, and the divisions/departments audited were committed to the relevant improvement recommendations.

In order to ensure internal control issues are addressed in a timely manner, the Unit has set up a register to monitor and report the implementation progress of the audit recommendations to the Audit Committee on a half-yearly basis.

Risk Management PolicyAll divisions / departments are reminded of the policy

through the annual updating of risk registers

RISKMANAGEMENT

PROCESSES

Risk Monitoring

Risk Control

Risk Identification

and Analysis

Monitor risk mitigating activities

Identify and analyse risks that potentially impact

the key processes of operations

Report identified risks and progress of treatment plans to management

Evaluate the impact on the operations

and the likelihood of occurrence of the

identified risks

Assess the effectiveness of existing controls and provide treatment plans

where required

Risk

Report

ing

Risk

Asse

ssm

ent


Independent Checks and Balances

Appeal boards

The Mandatory Provident Fund Schemes Appeal Board established pursuant to the MPFSO hears appeals against any decision of MPFA specified in Schedule 6 of the MPFSO. The Occupational Retirement Schemes Appeal Board established pursuant to the ORSO hears appeals against the ORSO Registrar’s decisions as specified in the ORSO. One appeal was lodged with the Mandatory Provident Fund Schemes Appeal Board during the year.

Process Review Panel

The Process Review Panel in relation to the Regulation of Mandatory Provident Fund Intermediaries (PRP) is an independent panel established by the Chief Executive of HKSAR to review and advise MPFA on the adequacy and consistency of its internal procedures and operational guidelines in relation to its regulation of MPF intermediaries.

The PRP’s third annual report containing its observations and recommendations to MPFA was published in August 2018, after PRP reviewed 41 completed cases in relation to MPF intermediaries. 14 of these cases were selected for detailed review. Having studied the report, we have implemented new measures and enhanced existing internal procedures in relation to case handling, enforcement actions and communication with frontline regulators.

MEMBERS FIRSTAdd value to scheme members’ MPF savings for retirement


Business Operations

42

MPFA at a Glance

MPFA is a statutory body established in 1998 under the MPFSO to regulate and supervise MPF schemes. It also assumes the role of the Registrar of Occupational Retirement Schemes.

Our Mission

• To regulate and supervise privately managed provident fund schemes;

• To educate the working population about saving for retirement and the role of the MPF System as one of the pillars supporting retirement living; and

• To lead improvements to provident fund schemes to make them more efficient and user-friendly, and better meet the needs of the working population.

Our Vision

To build a retirement savings system that is valued by Hong Kong people.

Key Figures about MPF (31.3.2019)

1 Including one approved trustee which operates only APIFs and does not operate any MPF schemes.

2 Principal intermediary refers to a business entity registered by MPFA as an intermediary for selling, marketing or giving advice on MPF schemes.

3 Subsidiary intermediary refers to a person registered by MPFA as an intermediary for selling, marketing or giving advice on MPF schemes on behalf of the principal intermediary to which the person is attached.

4 Including two registered schemes that are to be terminated.

5 Including 429 funds available in the market, 35 funds under two registered schemes that are to be terminated, and 12 funds approved to be launched at a later date.

6 Approved pooled investment fund (APIF) refers to a type of investment fund that a constituent fund invests into. It can be in the form of an insurance policy or a unit trust.

7 Index-tracking collective investment scheme (ITCIS) refers to a collective investment scheme which has the sole investment objective of tracking a particular market index.

Approved trustees1 15

Registered intermediaries (total) 33 459

Principal intermediaries2 412

Subsidiary intermediaries3 33 047

Registered schemes4 32

Approved constituent funds5 476

Approved pooled investment funds6 (APIF) 316

Approved index-tracking collective investment schemes7 (ITCIS) 131

Latest lists of MPF trustees, schemes and funds are available on MPFA’s website: http://www.mpfa.org.hk/eng/public_registers/index.jsp

Business Operations 43

MPF Industry Supervision and Development

8 Five out of 228 cases were related to the implementation of the Default Investment Strategy (DIS) covering trustees' customer services and issuance of DIS notices. Three out of 228 cases were either withdrawn or non-pursuable.

9 The non-compliances were in relation to scheme administration, which includes late reporting of default contributions to MPFA, late processing of transfer or payment of MPF benefits and failure to submit various returns or reports to MPFA, etc.

MPF Trustees

Surveillance and monitoring

We adopt a proactive and risk-based approach in monitoring and supervising trustees.

We assess and oversee trustees’ compliance and detect potential weaknesses. In respect of areas of concern, we issue circulars, newsletters and reminders to provide guidance and take supervisory or enforcement actions as appropriate. We investigate suspected non-compliance cases and make regulatory responses having regard to factors including the nature and scope of the cases.

Supervision and enforcement actions in 2018-19

Seven circulars were issued covering matters relating to our regulatory concerns on trustees’ potential compliance weaknesses and certain

high risk operational areas which required trustees’ attention.

In particular, a circular relating to trustees’ special voluntary contributions (SVC) arrangements was issued. The circular sets out general guidance for trustees to strengthen their surveillance and risk management framework when offering and operating SVC arrangements. Trustees were reminded to take pre-emptive actions to ensure that MPF funds are not used for speculation or short-term trading purpose.

In addition, two newsletters and six reminders were issued to trustees on compliance, scheme administration, and other MPF issues.

130 enquiries were handled in relation to scheme administration, investment and fund operations (cases arising from monitoring, enquiries, complaints and trustees’ self-reporting).

257 complaint cases against trustees were received:

228 cases relating to service quality8 were referred to the trustees concerned to address the issues; and

29 other cases were enquired into with the trustees concerned to assess if there were any suspected non-compliance.

40 cases of suspected non-compliance by trustees were investigated or are still on-going.

Supervisory compliance letters were issued to trustees in 78 cases in relation to internal controls, regulatory obligations, record keeping, investment compliance, and scheme administration.

Five independent reviews were subsequently engaged by trustees to undertake improvement measures.

11 financial penalty notices amounting to a total sum of $3,250,000 were issued to trustees9 for their non-compliance with the requirements of the MPF legislation.


Business Operations

Thematic programme

On trustees’ compliance

We pursued a focused supervisory programme to address operational risks and governance of trustees with key compliance issues.

A trustee undertook to implement a transformation programme to overhaul its governance, risk management, administration infrastructure and processes. We closely monitored its programme through regular meetings with the trustee and the appointment of an independent consultant to assist us in this matter.

On trustees’ complaints handling

We conducted thematic on-site inspections to trustees to review and assess if they have properly put in place procedures to handle complaints from scheme members and employers. We also assessed the adequacy of their governance framework and control measures of complaints handling. Key observations and good practices identified were shared with trustees.

On data risk management and cybersecurity risk management

We issued letters to require that trustees step up governance over integrity of scheme member data. We also required that trustees conduct a self-assessment on cybersecurity risk management in 2018.

From October 2018, we have been conducting thematic on-site inspections to trustees covering cyber resilience and data risk management.

Governance of trustees

Good governance is an essential element of an efficient pension system. Promoting a high standard of governance among trustees has always been our key regulatory objective.

We maintain a supervisory dialogue with trustees on governance based on their business and governance plans.

Following a governance workshop for trustees in 2017, we organized a “Governance Charter for MPF Trustees” (Charter) Pledging Ceremony and Seminar in May 2018 to promote a good governance culture amongst trustees.

The Charter has six core values –

Value-for-money MPF schemes and services

Act in the best interests of members

Lift governance standards

Understand and respond to members’ needs

Engage members through transparency and communication

Serve with honesty and integrity

All trustees pledged to put scheme members’ interests first and are committed to putting in place a sound governance framework to operate schemes efficiently and effectively.

Following the Charter, we issued a set of high-level governance principles in November 2018 to guide trustees’ boards of directors in formulating measures for implementing the core values in the Charter as well as reviewing their current governance structure, competence and capability.

We also provide additional guidance or training to trustees on the expected standards underpinning each of the governance principles.

Business Operations 45

Corporate social responsibility (CSR) of trustees

While MPF trustees have the duty to exercise care, skill, diligence and prudence in administering MPF schemes, they should also be socially accountable to scheme members, other stakeholders and the public.

In the year, a circular letter was issued to trustees to highlight CSR initiatives that they are encouraged to co

Documents

ANNUAL REPORT 2018-19 · Annual Report 2018 19 T Mandatory Provident Fund Schemes Authority Level 8 , Tower 1, Kowloon Commerce Centre, 51 Kwa i Cheong Roa d, Kwai Chung, Hong Kong