In view of the intense competition in the Hong Kong's Mandatory Provident Fund (MPF) market and initiatives by the Mandatory Provident Fund Authority (MPFA) to drive down fees, the industry is expecting more MPF mergers or restructurings, with smaller scale schemes/funds being merged or terminated over the next year.
If an MPF scheme, a constituent fund or approved pooled investment fund is to be merged or terminated, prior approval must be obtained from the MPFA. A restructuring proposal should be provided to the MPFA which contains, amongst other things, information on how the restructuring will be carried out, the arrangement for transferring members' benefits, the cost of the restructuring, the number of affected scheme members and a draft notice to employers/members.
Prior approval from the Securities and Futures Commission (SFC) should also be obtained for the restructuring proposal and draft notices. Applications for proposed restructurings should be made to the MPFA and SFC concurrently.
Notices to employers/members should set out the reasons for the restructuring, the relevant provisions under the constitutive documents, the consequences of the restructuring and the impact on existing scheme members, alternatives available to members, the estimated costs and who is expected to bear them. If possible, members should be provided with a right to switch without charge into another authorised MPF scheme or fund. Generally, not less than three months' prior notice should be provided.
Where an approved pooled investment fund is also authorised by the SFC to be offered directly to retail investors, the requirements under the Code on Unit Trusts and Mutual Funds must be complied with.
We recommend that product issuers consult the MPFA and SFC on their restructuring plans prior to making formal applications.