Consumer Council Submission to the Financial Services and the Treasury Bureau on Enhanced Regulation of Mandatory Provident Fund Intermediaries
1. The Consumer Council (the Council) is pleased to submit views to the Financial Services and the Treasury Bureau (FSTB) regarding the paper entitled "Enhanced Regulation of Mandatory Provident Fund Intermediaries".
2. The following sets out for consideration of FSTB the Council's views on the legislative proposals raised in the paper that have direct implications to the interests of consumers of MPF products.
Regulation of MPF Intermediaries
3. The Council welcomes the Government's proposal to strengthen the protection of scheme members' interest through establishing a statutory regulatory framework for MPF intermediaries in Hong Kong.
4. On the whole, the Council fully supports introduction of legislation to prohibit against engaging in regulated MPF sales and marketing activities by persons other than registered MPF intermediaries; and provision of a range of disciplinary tools to the Mandatory Provident Fund Schemes Authority (MPFA) and the Frontline Regulators (FRs) to deter non-compliance with the statutory requirements for MPF intermediaries.
5. To secure effectiveness, the Council strongly urges that surveillance be carried out by MPFA and FRs to closely monitor and deter any improper sales and marketing practices of MPF intermediaries (e.g. setting up of promotion booths to get quick deals on the spot which may act to the disadvantages of scheme members in that they do not have adequate information or time to make an informed decision). This is important for protection of scheme members' interest since more direct and aggressive sales activities could be expected upon the implementation of the Employee Choice Arrangement (ECA).
6. With regard to the proposed shared regulatory responsibility between MPFA and FRs, the Council considers that if this approach is to be adopted, it will be important for MPFA and FRs to make collaborative efforts to ensure regulatory consistency, so as to achieve effective supervision and discipline of MPF intermediaries coming under different FRs. In this regard, the Council supports putting in place the proposed Appeal Board and independent Process Review Panel to enhance consistency among FRs in terms of enforcement.
7. The Council is of the further view that regulation should be comprehensive enough so as not to leave any unregulated areas or regulatory gaps. It would be unsatisfactory if activities were left unregulated due to lack of clarity as to which regulator is responsible. The Council welcomes provision in the proposed MPF Intermediaries Register of the name of the FR concerned in relation to each registration of an intermediary and to make the Register accessible to the public. This, at least, will make it easy for the public to see which FR is the regulator of a particular intermediary.
8. From the perspective of complaints handling, the Council is of the view that MPFA as the predominant regulator for standard setting and registration of MPF intermediaries should serve as the first contact point for scheme members to seek general advice in relation to alleged misconduct of MPF intermediaries. The Council believes it is necessary for details to be given to the public as to the role of MPFA in terms of complaints handling.
9. As regards the proposed conduct requirements, the Council suggests adding a requirement for MPF intermediaries to disclose to prospective clients at the time of carrying out MPF sales and marketing activities the level of commission (or benefits) receivable by the intermediaries for the sale of the relevant MPF products. Commission disclosure could mitigate any potential conflicts of interest especially since the level of commissions may incentivize MPF intermediaries to promote to prospective clients MPF products which are not appropriate to their circumstances.
10. In relation to the proposal of requiring MPF intermediaries to make adequate disclosure of relevant material information in dealing with their clients, the Council believes that intermediaries should also be required to explain to their clients all significant consequences, or disadvantages of any transfer of benefits. Any suspected distortions such as provision of inaccurate or misleading statements which induced clients to transfer benefits to another schemes or funds should be subject to investigation and disciplinary action. In this regard, reference can be drawn from the practice in the insurance industry in respect of replacement of insurance policies.
11. Furthermore, the Council is of the view that consideration should be given to introduce cooling-off period, where appropriate, to render full protection to scheme members. Provision of a cooling off period can provide an effective bar to later complaints as a result of improper sales practices.
12. The Council considers that introducing legislation on mandatory disclosure of prescribed material information by intermediaries and compliance check (both pre-sales and post-sales controls) by trustees and regulators are essential to ensure that relevant information is provided and suitable MPF products are promoted to scheme members. This will enhance consumer confidence in the MPF market.
Establishment of an E-platform for Transfer of MPF Benefits
13. The Council welcomes the proposal of MPFA to establish and operate an electronic transfer system (E-platform) to prepare for substantial increase in the number of elections by scheme members for transfer of benefits among MPF schemes upon the implementation of the ECA.
14. Considering that a major cause of scheme members¡¦ complaints is related to delay in fund processing and accuracy of fund transfers, the Council supports making it mandatory for all MPF trustees to participate in the system and have all transfers of MPF benefits processed by the E-platform.
15. As a value-added feature, the Council is of the opinion that scheme members should be allowed to access the E-platform to keep track of their fund transfer status and if possible to view a consolidated record of their various fund accounts (since scheme members may easily lose track of their MPF accounts if they have changed jobs a number of times and have not combined the accounts into a single account). This feature will enhance the value of the E-platform beyond just facilitating the trustees¡¦ processing of scheme members¡¦ elections for transfer of benefits.
16. Allowing scheme members¡¦ access to the E-platform will also improve transparency of the fund transfer process, and make it easier to manage scheme members¡¦ expectation about the processing time and enable them to keep track of their MPF accounts.
17. The establishment of the E-platform will help to minimize the costs associated with transfers of benefits. As such the Council sees in it an opportunity for MPFA to explore with the MPF industry the lowering of the MPF administration fees.