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
6
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
8
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)
9
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)
11
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)
12
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
15
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
16
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
19
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
20
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