Cap 485B Sched 3 MINIMUM STANDARDS APPLICABLE TO TRUSTEES, ETC. OF SCHEMES (MANDATORY PROVIDENT FUND SCHEMES (EXEMPTION) REGULATION; Mandatory Provident Fund Schemes Ordinance)

Contents of Section

Chapter:	485B	Title:	MANDATORY PROVIDENT FUND SCHEMES (EXEMPTION) REGULATION	Gazette Number:	E.R. 1 of 2013
Schedule:	3	Heading:	MINIMUM STANDARDS APPLICABLE TO TRUSTEES, ETC. OF SCHEMES	Version Date:	25/04/2013

[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 1 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 1 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 1 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

(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;

(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;

(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;

(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;

(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)

(E.R. 1 of 2013)