The CIB document, which was issued in response to a 28 March invitation for responses to the proposed changes, to be submitted by 30 April, also argues that a little more than a month fell short of “the usual three-month period” for such public consultations, and was therefore inadequate.
The legislative proposals in question were drawn up by the Financial Services & Treasury Bureau (FSTB), one of the main legislative arms of Hong Kong’s government, which is responsible for developing and implementing government policy on financial and treasury matters.
In response, the FSTB said the proposed regime was robust and would "not only enhance protection" for Hong Kong’s so-called Mandatory Provident Fund (MPF) scheme members once it was implemented, but would also "ensure regulatory efficiency and facilitate compliance."
What is more, it said, the current system whereby all MPF intermediaries are themselves regulatees in the banking, insurance and securities sectors and as such, "are already subject to supervision by the relevant authorities for their primary businesses" has been and will continue to be "one of the primary conditions for registration with MPFA for engaging in the marketing and sales of MPF products".
Greater scheme member engagement sought
At issue are a raft of proposed changes to the Mandatory Provident Fund Scheme Arrangement (MPFSA) known collectively as the Employee Choice Arrangement (ECA). They originally were intended to be implemented by last month, but were postponed last September in order to ensure that the intermediaries licensed to sell MPF products were adequately prepared.
It is these changes that the CIB takes issue with.
Behind the ECA was a desire on the part of the FSTB to give the approximately 2.5 million members of the MPF a say in choosing the investments their mandatory retirement fund contributions were invested in, in order to reduce costs and encourage greater interest on the part of the scheme members in their own retirement provisions.
However, the FSTB was also concerned to ensure that policyholders were adequately protected in terms of understanding the risks involved in taking charge of their own investments before making it possible for them to do so via the ECA – which is why it compiled a list of proposed changes to the Mandatory Provident Fund Schemes Ordinance and put them out for consultation.
While sharing the FSTB’s belief that safeguards were needed, the CIB takes issue with aspects of its approach, beginning with what it said was a “lack of due process” by not allowing more time for the public consultation, which it said could cause the government to be blamed if problems resulting from the proposed changes later emerged.
It added: “The regulation of [Mandatory Provident Fund Scheme] intermediaries is about the protection to be afforded to 2.5 million MPF scheme members.
“It should be treated as important as other policy initiatives.
“An earlier date for the implementation of the [proposed changes] should not be at the expense of the proper protection of scheme members’ interest.”
FSTB: investor protection ‘enhanced’
In a statement, the FSTB argued that keeping regulation of MPF intermediaries in the hands of their respective banking, insurance and securities sector regulators as the basis of the new system would "make the best use of regulatory experience and resources; minimise disruption to the existing regulatory arrangements and facilitate an early implementation of [the] ECA."
As for the question as to whether the official comment period was long enough, the FSTB pointed out that it had been in discussions with "the relevant stakeholder groups" well before the March request for comments went out, and added said a further comment period will be provided as a final version of the legislation is hammered out, "during which the public and stakeholder groups can provide [additional] comments" as desired.
Although the FSTB didn’t say so, the narrow comment window may have reflected an urgency to move the proposal along if it is to be introduced to the current Legislative Council this year, in hopes that it may be enacted before the end of its term in July 2012.
Hong Kong’s Mandatory Provident Fund Scheme was introduced a little more than a decade ago in an effort to compel Hong Kong’s citizens to provide for their own retirement, as China’s centuries-old tradition of children looking after their elderly parents failed to keep up with a rapid rise in life expectancy, coupled with a lower birthrate that forced the burden of care onto fewer individuals.
As the Mandatory Provident Fund Schemes Authority (MPFA) notes on the homepage of its website, 28% of Hong Kong’s population of around 7 million will be over 65 by 2039.
With a total savings pool of nearly $HK45bn (£3.54bn, $5.8bn), and expectations that this amount will treble over the next ten years, the fund is regarded by many as having achieved a considerable measure of success, particularly as it has been handled entirely by the private sector and thus has not been a drain on government resources.
However, after it was criticised for failing to encourage greater participation on the part of those it was created to help, the MPFA in 2009 decided to look into introducing greater choice, in the hope of encouraging more engagement by scheme members.
The changes contained in the proposed Employee Choice Arrangement originally were intended to be implemented by last month, but were postponed last September in order to ensure that the intermediaries licensed to sell MPF products were adequately prepared. It is these changes that the CIB takes issue with.
In addition to saying that the consultation period has been too brief, the CIB paper argues that:
• The proposed “decentralised” regulatory model, which would see intermediaries handling MPFA products regulated by four regulatory bodies rather than one, is “detrimental to the development of a professional MPF/pension industry” and “inefficient”; and it is therefore “counter-proposed that the model of direct regulation of MPF intermediaries by MPFA should be adopted”
• Given the scale of the MPF going forward, it should begin now to be regarded as “an important financial service sector” rather than merely “incidental”, and therefore, there is a case for “a strengthened regulatory regime” to be established before scheme members are permitted to exercise greater choice in their investment holdings, even if this means deferring even longer the ECA’s implementation
• “the co-existence of multiple regulators for a single industry, in this case the MPF industry, will induce all kinds of confusion and perception of unlevel playing fields and favouritism towards a particular industry”
• The role of MPF intermediaries in handling MPF products has been insufficiently explored, and MPF scheme members deserve to have disclosed to them such information where relevant
Independent insurance regulator
Some see the matter of how the intermediaries handling MPF products are to be regulated as a side issue of a larger debate that is under way in Hong Kong at the moment, as the government goes ahead with plans to replace its Office of the Commissioner of Insurance, a government body, with a new, independent insurance regulator.
As reported here last year, under the plan, Hong Kong insurance intermediaries – which since 1995 have been overseen by three self-regulatory bodies, which in addition to the CIB include the Professional Insurance Brokers Association and the Insurance Agents Registration Board – would be supervised and licensed by the new entity.
The insurance industry is concerned that the current proposal under consideration, which would see the Hong Kong Monetary Authority rather than the new Independent Insurance Regulator responsible for overseeing the sales of insurance products by Hong Kong’s banks, could cause problems and would be an "unlevel playing field" for non-bank insurance intermediaries.
Those in favour of this arrangement argue that it makes the most sense because the HKMA is otherwise responsible for overseeing the banks.
In its statement responding to the CIB’s concerns, however, the FSTB argued that that the proposed regulatory regime for MPF intermediaries had "nothing to do with marketing and sales of insurance products", since "only conduct regulation of MPF products is involved."