The MPF “Firewall”: How Trustees, Investment Managers and Custodians Protect You

The MPF system exists to provide retirement protection for Hong Kong people, and it builds in multiple mechanisms to safeguard members’ interests. Beyond trustees handling administration and coordination, the MPF legislation establishes investment managers and custodians — three parties operating independently, like a “firewall” that separates investment and custody from administrative functions, playing a major role in protecting members.

What Is the MPF “Firewall”?

The MPF “firewall” is the system’s design of three independent roles with distinct statutory functions: the trustee selects the investment manager and custodian and coordinates plan administration, the investment manager makes investment decisions, and the custodian safeguards plan assets; this separation of powers means no single party controls both the investment and custody of contributions, giving members’ interests multiple layers of protection.

How Are Investment Managers Regulated?

An investment manager’s main duty is investing members’ contributions: offering fund portfolios that meet MPF legislative requirements, trading in different markets and making appropriate investment decisions. Key regulatory points:

• Investment managers must be licensed by the SFC and are subject to its supervision in Hong Kong;
• They must maintain adequate controls and safeguards over plan investments;
• They must observe investment limits in the MPF legislation — for example, in an equity fund, a single stock may not exceed 10% of the constituent fund’s total assets;
• They are supervised by the MPFA and the trustee to ensure their investments and internal controls meet the stated investment objectives and rules.

To diversify risk and give members ample choice, trustees may offer investment options managed by different investment managers. Trustees must also offer the MPF Conservative Fund, which invests only in bank deposits or quality money-market instruments, for members with low risk tolerance.

What Does the Custodian Do?

The custodian safeguards the plan’s assets. By law, a custodian must be a recognised financial institution in Hong Kong and meet capital and net-asset requirements; if custodian negligence causes any loss to an MPF scheme, it bears the responsibility or pays compensation. The custodian is independently audited each year and provides the auditor’s report to the trustee. To learn more about how the MPF system works, visit the MPF education hub.

Author: Lee Ping-hei (Chief Retirement and Intermediary Sales Development Director, AXA)