Development of a Centralized Platform (CP)

for MPF Scheme Administration

Alice Law Deputy Chairman & Managing Director

Mandatory Provident Fund Schemes Authority28 March 2019

Outline

2

Background

Features of the Centralized Platform (CP)

1

2

561 6Implementation of the Centralized Platform (CP)

3

Background

3

MPF System: Key Features

Mandatory participation (except for exempt persons)

Privately managed (investments not government managed)

Decentralized administration

Trustees/schemes chosen by employers*; funds chosen by employees MPF Scheme Administration

*Under the Employee Choice Arrangement, employees have the right to transfer part of their accrued benefits to a scheme of their choice.

4

Snapshot of Current MPF Scheme Administration

Default

Contributions- Report to MPFA

- Follow up defaulting

employers

- Collect and validate

surcharge

Enrolment

Form

Date Ref Name R/I Cont - ER Cont -EE

3/10/2017 E-001 Chan Tai Man $20,000 $1,000 $1,000

3/10/2017 E-002 Wong Tai $25,000 $1,250 $1,250

3/10/2017 E-003 Ding Ding $28,000 $1,400 $1,400

3/10/2017 E-004 David Sir $19,000 $950 $950

3/10/2017 E-005 John Sir $18,000 $900 $900

3/10/2017 E-006 Happy Wong $17,000 $850 $850

3/10/2017 E-007 Mathar Yuen $16,000 $800 $800

3/10/2017 E-008 Lee Ho $15,000 $750 $750

3/10/2017 E-009 Wong Tai $14,000 $700 $700

3/10/2017 E-010 Kwan Kung $13,000 $650 $650

Total $9,250 $9,250

Enrolment- Employers/ Scheme

Members

- Collect enrolment data

Contributions- Collect & process contribution data

- Validate calculations

- Follow up errors with employers

- Allocate contributions to member A/C

- Allocate units to member A/C

Investment- Allocate contributions

according to fund choice of

members

- Aggregate subscription &

redemption orders of each

MPF fund for investment by

IM

Information &

Communication- Update member/

employer particulars

- Send benefits statements

- Provide A/C & other MPF

information

Intra-scheme Fund

Switching- Verify instructions

- Calculate redemption

& subscription amount

- Update unit balances

- Issue confirmation

Inter-scheme Transfer- Transfer of MPF benefits

from a scheme to another

- Follow up with counter-

party trustee

- Redeem / subscribe fund

units

- Issue transfer statement /

confirmation

Benefit Payment - Member withdrawal/ Offsetting

claims

- Verify submission & supporting

document

- Verify entitlements

- Submit info to MPFA (PD cases)

- Fund redemption & make

payment

- Provide final benefit statement5

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About 4.3 million scheme members

Over 9.8 million accounts (4.1 million contribution accounts; 5.7 million personal accounts)

30 MPF schemes; 450+ MPF funds

14 trustees (12 scheme administration platforms), multiple standards and processes

65% of the 30 million annual MPF transactions are paper-based (e.g. submitting physical enrolment forms, Remittance Statements and cheques to trustees etc.)

MPF System at a Glance

MPF Assets

7

0

100

200

300

400

500

600

700

800

900

1,000

Accrued Benefits Total Net Contributions Received

HK

$ B

illio

n

• A growth of MPF assets since the inception of the System

MPF Accrued Benefits and Net Contributions (1.12.2000 – 31.1.2019)

Investment Returns(net of fees & charges)

$227 billion (26% of AUM)

Contributions(net of amount withdrawn)

$631 billion

$858 billion

* Monthly average: HK $5,985 million

Annual MPF Contributions Received

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Quarter Total contributions received (HK $ million)

Q1 2018 18,295

Q2 2018 17,748

Q3 2018 17,684

Q4 2018 18,104

FER

1.74%

(2012)

Investment management

0.59%

Administration

0.75%

Others0.4%

*According to the “Report on a study of administrative costs in the Hong Kong MPFSystem” by Ernst & Young commissioned by the MPFA in 2012*Link to the report:http://www.mpfa.org.hk/eng/information_centre/publications/research_reports/files/MPF%20Consultancy%20Study%20Report(Eng).pdf

*Latest FER of MPF System: 1.52% (Feb 2019)

Components of Fund Expense Ratio (FER)

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10

MPF Scheme Administration -Current Status

*Source: Presentation of Government’s representative at the Panel on Financial Affairs of the LegCo on 18 Dec 2018

AIA

Bank Consortium Trust

Bank of Communication

Bank of East Asia

BOCI-Prudential

China Life

MassMutual

HSBC Institutional

Manulife Provident Fund

HSBC Provident Fund

Sun Life Pension

Sun Life Trustee

RBC Investor

Principal Trust Asia

In-house AdministrationOutsourced to Associated Co.Outsourced to 3rd party

AIA International Ltd. (HK Branch)

Bank Consortium Trust Co. Ltd.

Bank of Communications (Trustee) Ltd.

Bank of East Asia (Trustees) Ltd.

BOCI-Prudential Trustee Ltd.

China Life Insurance (Overseas) Co. Ltd. HK Branch

MassMutual Trustees Ltd.

HSBC Institutional Trust Services (Asia) Ltd.

Manulife (International) Ltd.

Hongkong and Shanghai Banking Corp. Ltd.

BestServe Financial Limited

Principal Trust Company (Asia) Ltd.

Most trustees operate MPF scheme administration services through its own administrator

A small number of trustees outsourced to SunLife’s administrator (BestServe)

14 Trustees 12 Scheme Administrators

Features of the Centralized Platform (CP)

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Improve accuracy, reliability and efficiency

Standardize, streamline and automate the MPF administration processes

Reduce overall costs of the MPF System

Improve use experience

Enable future MPF reforms initiatives

Greater transparency and member engagement

Centralization and consolidation

Objectives of the Centralized Platform (CP)

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To pave way for implementing

future reforms of the MPF System

Vision of the CP

13

14

MPF Scheme Administration -Current Stage VS Centralized Platform

*Source: Presentation of Government’s representative at the Panel on Financial Affairs of the LegCo on 18 Dec 2018

I. Current status

AIA

Bank Consortium Trust

Bank of Communication

Bank of East Asia

BOCI-Prudential

China Life

MassMutual

HSBC Institutional

Manulife Provident Fund

HSBC Provident Fund

Sun Life Pension

Sun Life Trustee

RBC Investor

Principal Trust Asia

In-house AdministrationOutsourced to Associated Co.Outsourced to 3rd party

AIA International Ltd. (HK Branch)

Bank Consortium Trust Co. Ltd.

Bank of Communications (Trustee) Ltd.

Bank of East Asia (Trustees) Ltd.

BOCI-Prudential Trustee Ltd.

China Life Insurance (Overseas) Co. Ltd. HK Branch

MassMutual Trustees Ltd.

HSBC Institutional Trust Services (Asia) Ltd.

Manulife (International) Ltd.

Hongkong and Shanghai Banking Corp. Ltd.

BestServe Financial Limited

Principal Trust Company (Asia) Ltd.

Most trustees operate MPF scheme administration services through its own administrator

A small number of trustees outsourced to SunLife’s administrator (BestServe)

14 Trustees 12 Scheme Administrators

II. eMPF

AIA

Bank Consortium Trust

Bank of Communication

Bank of East Asia

BOCI-Prudential

China Life

MassMutual

HSBC Institutional

Manulife Provident Fund

HSBC Provident Fund

Sun Life Pension

Sun Life Trustee

RBC Investor

Principal Trust Asia

Centralized Platform

14 Trustees

All trustees would use the CP to handle MPF scheme administration

Standardize and streamline administration process, enhance user experience and create cost reduction through synergy

Trustee Administrator/Centralized Platform

Trustee / Scheme B

Trustee / Scheme A

Trustee / Scheme N

…..

Trustees/ schemes continue to handle below as they are not covered by the Centralized Platform:• fund offering and

management• appointing investment

manager and custodian• Anti-money laundering• customer—relationship

management

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Note: The MFS is a payment gateway for transmitting payment instructions.

Conceptual Model of the CP

*Source: Presentation of Government’s representative at the Panel on Financial Affairs of the LegCo on 18 Dec 2018

Centralized Platform

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Features of the CP

A common electronic platform -

centralized processing of registration, enrolment, contribution, transfer of benefits, benefits withdrawal and record keeping and maintenance

automated processing capability with one set of common standards

two core systems (one for handling member data and transaction data and the other for handling payments instructions)

central registration which issues a unique MPF ID

an user interface connecting the Centralized Platform with MPF trustees that would enable access by employers and scheme members (employees, self-employed persons and personal account holders) (e.g. employers can make MPF contributions for their employees)

data and instructions from employees and employers can be channeled to the trustees

*Source: Presentation of Government’s representative at the Panel on Financial Affairs of the LegCo on 18 Dec 2018

Implementation

of the Centralized Platform (CP)

17

18

Implementation Details

• Public tender for -

A. Infrastructure

B. Operation

• To formulate strategies and measures on data management and governance

• MPFA to set up a company to own and operate the Centralized Platform. The company is neither a trustee nor a regulatee of MPFA

• Trustees continue to owe fiduciary duties to their scheme members

*Source: Presentation of Government’s representative at the Panel on Financial Affairs of the LegCo on 18 Dec 2018

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Challenges

• guiding principle: maximize operational efficiency

• reduce regulatory burden

Legislative overhaul

Risk management

Digital take-up by users

Master data management

and data governance

• maintain data integrity & accuracy

• to sign an agreement with trustees on data ownership, usage, dissemination and sharing

• concentration risk• disruption to existing

customer service rendered by trustees

• ensure data security• will consult the Privacy

Commissioner for Personal Data

• 70%-90% scheme members use digital means for change of investment instructions

• avg digital take-up by employers is only 20%-30%

*Source: Presentation of Government’s representative at the Panel on Financial Affairs of the LegCo on 18 Dec 2018

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Development Roadmap

2019 Request for proposals, tendering exercise

2020 Tender award in Q1

System design and development in mid-2020

2021 Submission of legislative amendment proposal to LegCo

Expect a comprehensive overhaul of the law to streamlinescheme administration workflows and reduce regulatoryburden, etc.

2022 Completion of the Centralized Platform

2022 to 2027-28

Data cleansing & standardization, business process reengineering, phased commencement of the Centralized Platform

*Source: Presentation of Government’s representative at the Panel on Financial Affairs of the LegCo on 18 Dec 2018

Q & A