LegCo Subcommittee on MPF System
Information Note
Trustees - An Overview

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Purpose

This paper gives an overview of the information notes on trustees and how they relate to our proposed comprehensive system of prudential regulation and supervision of service providers to ensure security of assets.

Role of Trustee

2. The trustee plays a crucial role in the MPF System as he is charged with the responsibility to administer, manage and maintain an MPF scheme in accordance with standards prescribed under the Ordinance. In practice, trustees may delegate some of the functions to other service providers, particularly in the area of investment management. The latter involves the making of investment decisions by the investment manager in accordance with the investment objectives of the scheme, and the safekeeping of the assets of the scheme by the custodian who will report regularly to the trustee on the investment details.

3. To safeguard the security of scheme assets and hence the interest of the scheme members, the MPF Schemes Ordinance contains provisions requiring the trustee and other service providers to meet certain standards, for example, capital adequacy, financial resources, suitability of company directors etc. There are also provisions relating to the way they should operate and various measures they should undertake in the interest of MPF scheme members.

4. Detailed proposals relating to these areas have now been developed. Some of them are discussed in the following four papers :

1. Approval Criteria for Trustees - the minimum qualification required for corporate trustees and individual trustees to be approved trustees of MPF schemes.
2. Duties of Trustees - the statutory and fiduciary duties of the trustee in the administration of an MPF scheme.
3. Custodial Arrangement - the standards of asset custody, including qualification and capital requirements of custodians.
4. Professional Indemnity Insurance - arrangements for securing adequate professional indemnity insurance against misfeasance and illegal conduct by the approved trustee and other persons in order to safeguard the interest of scheme members.

5. There will be further papers to focus on investment management, internal controls in scheme management, on-going supervision and monitoring, and crisis management.

Security of Scheme Assets

6. In our previous information note - "Basic Approach of the MPF System : Security of Scheme Assets", we provided a summary of the building blocks in our system to safeguard MPF scheme assets -

1. Built-in Features of the MPF System
   1. trust arrangement
   2. qualification of service providers
   3. internal control in scheme management
   4. investment standards and restrictions
   5. regulation of investment management
   6. transparency of investment operation

2. Supervision and Monitoring
   1. the MPFA
   2. the auditing
   3. whistle blowing by service providers
   4. self-policing by employees

3. Safety Net
   1. capital requirements
   2. performance guarantees
   3. professional indemnity insurance
   4. compensation fund

7. The proposals in the four papers listed in paragraph 4 above will be part of the building blocks in (a)(i), (a)(ii), (c)(i) , (c)(ii) and (c)(iii) above.

Mandatory Provident Fund Office
Financial Services Branch
14 November 1996
[Ref. : Paper/MPF/SC-1]

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