Hong Kong Regulations

MANDATORY PROVIDENT FUND SCHEMES (EXEMPTION) REGULATION - SCHEDULE 3

MINIMUM STANDARDS APPLICABLE TO TRUSTEES, ETC. OF SCHEMES

(Past version on 14/12/2007).
(Past version on 01/04/2003).
(Past version on 01/07/2000).
(Past version on 03/01/2000).

[sections 17 & 28]
1.	Interpretation

(1)	In this Schedule, unless the context otherwise requires-
"actuary" (精算師) has the meaning given by section 2 of Part I of the 
Mandatory Provident Fund Schemes (General) Regulation  (Cap 485 sub. leg. 
A);
"associate" (有聯繫者) has the meaning given by Schedule 8 to the Ordinance;
"derivative" (衍生工具) has the same meaning as in the Second Schedule to the 
Trustee Ordinance (Cap 29);
"effective exposure" (有效風險) means-
(a)	in relation to a derivative contract, the nominal value of the 
investment multiplied by delta;
(b)	in relation to other kinds of securities and investments, the 
market value;
"employer trustee" (僱主受託人) has the same meaning as in section 25 of the 
relevant Ordinance;
"investment manager" (投資經理), in relation to a scheme, means a person 
appointed by a trustee of the scheme to manage the investment of the 
assets of the scheme;
"market value" (市值) has the meaning given by section 2 of Part I of the 
Mandatory Provident Fund Schemes (General) Regulation  (Cap 485 sub. leg. 
A);
"non-employer trustee" (非僱主受託人) has the same meaning as in section 25 of 
the relevant Ordinance;
"qualified director" (合資格董事), in relation to a company which is a trustee 
of a scheme, means a director of the company who satisfies the Authority 
that he has the skill, knowledge, experience and qualifications that are, 
in the opinion of the Authority, necessary for the successful operation of 
the scheme;
"registered trust company" (註冊信託公司) has the meaning given by section 2 of 
Part I of the Mandatory Provident Fund Schemes (General) Regulation  (Cap 
485 sub. leg. A);
"scheme" (計劃) means a relevant ORSO registered scheme to which an 
exemption certificate issued under section 16(1) of this Regulation 
relates.
(2)	For the purposes of the definition of "effective exposure" (有效風
險) in subsection (1), delta is the expected increase or decrease in the 
market value of the derivative contract given a 1 unit change in the value 
of the underlying investment.

2.	Trustees and investment manager to exercise 
appropriate care, skill, diligence and 
prudence with respect to the 
administration of a scheme

The trustees and investment manager of a scheme shall perform the 
following duties with respect to the administration of the scheme-
(a)	the duty to exercise a level of care, skill, diligence and 
prudence that may reasonably be expected of a prudent person who is acting 
in similar capacity and who is familiar with-
(i)	in the case of a trustee, the administration, management and 
maintenance of an ORSO registered scheme;
(ii)	in the case of an investment manager, managing the investment 
of the assets of an ORSO registered scheme;
(b)	in the case of a trustee, the duty to use all relevant 
knowledge and skill, in the administration, management and maintenance of 
the scheme, that the trustee may reasonably be expected to have in 
consequence of his business or occupation;
(c)	in the case of an investment manager, the duty to use all 
relevant knowledge and skill, in managing the investment of the assets of 
the scheme, that the manager may reasonably be expected to have in 
consequence of his business or occupation;
(d)	the duty to ensure that the assets of the scheme are invested 
in different investments so as to minimize the risk of losses of those 
assets, unless in particular circumstances it is prudent not to do so;
(e)	the duty to act in the interest of the scheme members and not 
in the trustee's or investment manager's, as the case may be, own interest;
(f)	the duty to act in accordance with the governing rules of the 
scheme.

3.	Appointment of investment managers

(1)	On and after the relevant date, no person shall be appointed to 
be the investment manager of a scheme except an investment management 
company that-
(a)	is a corporation licensed to carry on, or an authorized 
financial institution registered for carrying on, a business in asset 
management under Part V of the Securities and Futures Ordinance (Cap 571); 
or  (5 of 2002 s. 407)
(b)	is a company authorized by an authority recognized by the 
Authority to carry on under the law of a place outside Hong Kong the 
business referred to in paragraph (a).  (5 of 2002 s. 407) 
(2)	Subsection (1) shall not of itself prejudice the efficacy of 
the appointment of the investment manager of a scheme made before the 
commencement of this section.

4.	Investment standards

(1)	On and after the relevant date, the trustees and investment 
manager of a scheme shall ensure that-
(a)	derivatives are not used in such a way as to result in the 
assets of the scheme becoming leveraged thereby;
(b)	money is not borrowed for any of the purposes of a scheme 
except for the purpose of-
(i)	paying accrued benefits to or in respect of scheme members, and 
then only if-
(A)	the amount borrowed is not more than 10 per cent of the market 
value of the assets at the relevant time;
(B)	the borrowing is not part of a series of borrowing; and
(C)	the period for which the money is borrowed is not more than 90 
days; or
(ii)	settling transactions involving the acquisition or disposal of 
securities or other investments relating to the scheme, and then only if-
(A)	the period for which the money is borrowed is not more than 7 
days; and
(B)	at the time the decision to enter into those transactions was 
made, it was unlikely that the borrowing would be necessary.
(2)	For the purposes of this section, the assets of a scheme are 
leveraged if the effective exposure of the assets exceeds the market value 
of the assets.

5.	Trustee standards

(1)	Any trustee of a scheme appointed on or after the relevant date 
(and whether or not the trustee is described as an alternate trustee, 
emergency trustee or co-trustee in the governing rules of the scheme) 
shall-
(a)	in the case of a trustee which is a company incorporated in 
Hong Kong, be a registered trust company;
(b)	in the case of a trustee which is a company incorporated 
outside Hong Kong, satisfy the Authority that-
(i)	it is comparable to a registered trust company;
(ii)	it has a significant presence and control in Hong Kong;
(c)	in the case of a non-employer trustee who is an individual, 
satisfy the Authority that-
(i)	he is a person of good reputation and character and, in 
particular, has not been found guilty, whether in Hong Kong or elsewhere, 
of an offence involving fraud or dishonesty;
(ii)	he has the skill, knowledge, experience and qualifications 
that are, in the opinion of the Authority, necessary for the successful 
operation of the scheme;
(iii)	he has no past or present association (financial or 
otherwise) with-
(A)	the employer of the scheme otherwise than as-
(I)	if the employer is a company, a director of the company; or
(II)	a professional adviser;
(B)	any associate of the employer;
(C)	any controller of the employer;
(D)	any associate of any such controller,
	that could affect the impartiality of the trustee's independent 
judgment;
(iv)	he is not the auditor, investment manager or actuary of the 
scheme; and
(v)	he is ordinarily resident in Hong Kong;
(d)	in the case of an employer trustee who is an individual, 
satisfy the Authority that he is a person of good reputation and character 
and, in particular, has not been found guilty, whether in Hong Kong or 
elsewhere, of an offence involving fraud or dishonesty.
(2)	Any director (and whether or not the director is described as a 
replacement director of qualified director) of a company which is a 
trustee of a scheme, other than a trustee to which subsection (1)(a) or 
(b) applies, appointed on or after the relevant date shall satisfy the 
Authority-
(a)	that he is a person of good reputation and character and, in 
particular, has not been found guilty, whether in Hong Kong or elsewhere, 
of an offence involving fraud or dishonesty;
(b)	that he, or another director of the company, has the skill, 
knowledge, experience and qualifications that are, in the opinion of the 
Authority, necessary for the successful operation of the scheme.
(3)	Where on or after the relevant date, the trustees of a scheme 
are all individuals, then, upon any retirement of an existing trustee or 
appointment of a new trustee, there must be not less than 2 trustees of 
whom not less than 1 must be a non-employer trustee who complies with the 
requirements of subsection (1)(c).
(4)	For the purposes of subsection (1)(b)(i), the company referred 
to in that subsection is required to be able to comply with section 
77(2)(a), (b) and (c) of the Trustee Ordinance (Cap 29) as if-
(a)	the company were making an application under section 77(1) of 
that Ordinance; and
(b)	each reference to an amount of Hong Kong dollars in section 
77(2)(b) and (c) of that Ordinance were followed by the words "or an 
equivalent amount in any other currency freely convertible into Hong Kong 
dollars".
(5)	For the purposes of subsection (1)(b)(ii), the company referred 
to in that subsection-
(a)	must be a non-Hong Kong company;  (30 of 2004 s. 3)
(b)	must maintain an office in Hong Kong wherein there is an 
employee-
(i)	of the company;
(ii)	designated by the company as its Hong Kong chief executive 
officer;
(iii)	who ordinarily resides in Hong Kong; and
(iv)	who, either alone or with others, is immediately responsible 
to the directors of the company for the conduct of the whole of the 
business carried on by the company in Hong Kong;
(c)	must have its day to day business activities relating to its 
business in Hong Kong-
(i)	conducted wholly in Hong Kong (including the keeping of its 
records relating to those activities); or
(ii)	if conducted elsewhere, under the supervision and control of 
the employee referred to in paragraph (b) of the company together with 

sufficient records relating to those activities kept in Hong Kong to 
enable any audit required under the relevant Ordinance to be carried out; 
and
(d)	must have sufficient expertise and management resources in Hong 
Kong to conduct its business in Hong Kong effectively.

6.	Reporting of appointment of 
investment manager

Where the trustee of a scheme appoints an investment manager on or after 
the relevant date, the trustee shall, upon submission of the next annual 
return thereafter, give notice in writing to the Authority-
(a)	of the appointment; and
(b)	of the matters relied upon by the trustee to be satisfied that 
the investment manager complies with section 3(1)(a) or (b).

7.	Reporting of changes in trustees, etc.

(1)	The person who has the duty or power to retire or appoint the 
trustee of a scheme shall obtain the Authority's approval in writing 
before retiring or appointing, as the case may be, the trustee.
(2)	The trustee of a scheme which-
(a)	is a company; but
(b)	is not a trustee to which section 5(1)(a) or (b) applies,
shall obtain the Authority's approval in writing before retiring or 
appointing, as the case may be, a director of the company.
(3)	The Authority's approval under subsection (1) or (2) to the 
appointment of a trustee or director shall be sought by way of an 
application in writing-
(a)	made to the Authority;
(b)	in a manner and form specified by the Authority, either 
generally or in any particular case;
(c)	by the appointee unless the Authority specifies another person 
in lieu of the appointee;
(d)	accompanied by the prescribed fee;
(e)	accompanied by a statutory declaration as to the character and 
suitability of-
(i)	the trustee where section 5(1)(c) or (d) applies;
(ii)	the directors of the trustee where section 5(2) applies;
(f)	accompanied by such additional particulars and undertakings as 
may be required by the Authority.
(3A)	An undertaking given to the Authority pursuant to a 
requirement made under subsection (3)(f) must be by deed, or by a document 
of like effect acceptable to the Authority.  (1 of 2008 s. 10)
(4)	The Authority may, by notice in writing, exempt-
(a)	a person from the requirement of subsection (1)-
(i)	in the case of a trustee belonging to a class of trustees 
specified in the notice; and
(ii)	if, and only if, the conditions specified in the notice are 
complied with;
(b)	a trustee from the requirement of subsection (2)-
(i)	in the case of a director of a company belonging to a class of 
directors specified in the notice; and
(ii)	if, and only if, the conditions specified in the notice are 
complied with.
(5)	Without prejudice to the generality of conditions which may be 
specified in a notice under subsection (4), such conditions may provide 
that the retirement or appointment of a trustee, or of a director of a 
company, shall become void and of no effect unless and until the Authority 
approves the retirement or appointment in writing before the expiration of 
a period specified in the notice.  (46 of 2000 s. 40)