Hong Kong Regulations

MANDATORY PROVIDENT FUND SCHEMES (GENERAL) REGULATION - SECT 70

Temporary custodian

(Past version on 03/08/1999).

(1) The approved trustee of a registered scheme may act as a temporary
custodian of scheme assets even though the trustee would not, apart from this
section, be eligible to be a custodian of scheme assets, or has appointed an
eligible person to be a custodian of the scheme assets, but only for the sole
purpose of temporarily keeping-

   (a)  contributions and other payments received for the purposes of
        the scheme; or

   (b)  payments required or permitted to be made from the funds of the 
        scheme.

(2) When acting as a temporary custodian of scheme assets, an approved trustee
must-

   (a)  comply with the requirements set out in subsection (4);

   (b)  as soon as practicable after receiving contributions and other amounts
        from an employer or any other person for the purposes of the  scheme,
        pay them to the custodian; and

   (c)  as soon as practicable after receiving the payments from a custodian
        of the scheme assets for the purpose of paying accrued benefits or
        other amounts of money, pay them to the persons entitled to receive
        them.

(3) In so acting, the trustee must apply the same care, skill, diligence and
prudence as may be reasonably expected of a prudent person who has custody of
scheme assets.

(4) The requirements referred to in subsection (2)(a) are as follows-

   (a)  the scheme assets must be-

        (i)    administered and dealt with as trust property; and

        (ii)   recorded and controlled in such manner as may be customary and
               prudent in the circumstances;

   (b)  records of the scheme assets must be kept separate from all other
        assets of the trustee, including any assets held by the trustee for
        the benefit of a participating employer or any other person;

   (c)  the scheme assets must not be subject to an encumbrance, except in any
        of the circumstances set out in subsection (5); (1 of 2008 s. 12)

   (d)  the scheme assets must be applied only for the purpose of the
        registered scheme.

(5) The circumstances referred to in subsection (4)(c) are as follows-

   (a)  where the encumbrance is created for the purpose of securing an amount
        borrowed to enable accrued benefits to be paid to or in respect of
        scheme members, but only if-

        (i)    the amount borrowed (together with any other borrowings made
               for the same purpose) does not exceed 10 per cent of the
               market value of the scheme assets at the time of the borrowing;
               and

        (ii)   the borrowing is not part of a series of borrowings; and

        (iii)  at the time the borrowing was made, it was unlikely that the
               period of borrowing would exceed 90 days;

   (b)  where the encumbrance is created for the purpose of securing an amount
        borrowed to settle a transaction relating to the acquisition of
        scheme assets, but only if-

        (i)    the amount borrowed (together with any other borrowings made
               for the same purpose) does not exceed 10 per cent of the
               market value of the scheme assets at the time of the borrowing;
               and

        (ii)   the borrowing is not part of a series of borrowings; and

        (iii)  at the time the borrowing was made, it was unlikely that the
               period of borrowing would exceed 7 working days; and

        (iv)   at the time the decision to enter into the transaction was
               made, it was unlikely that the borrowing would be necessary;

   (c)  where the encumbrance is created for the purpose of securing a claim
        for payment of fees for the safe custody or administration of the 
        scheme assets by a central securities depository or a delegate of a
        custodian;

   (d)  where the encumbrance is created for the purpose of acquiring a
        financial futures contract pursuant to section 14 of Schedule 1 or a
        currency forward contract pursuant to section 15 of Schedule 1;

   (e)  where the encumbrance is created by operation of law (whether the law
        of Hong Kong or of a place outside Hong Kong). (1 of 2008 s. 12)

(6) (Repealed 1 of 2008 s. 12)

(7) An encumbrance created over scheme assets is void to the extent to which
it is inconsistent with this section.

(8) An approved trustee who, without reasonable excuse, fails to comply with
subsection (2) or (3) commits an offence and is liable on conviction to a fine
at level 5.