XN000022-1995-03-08 — Page 36

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there will be enhancement of regulatory controls over the operation of registered occupational retirement schemes, and the prudential supervision of scheme administrators and pooled retirement schemes;

a system would be developed to deal with benefit losses due to fraud or misfeasance of scheme administrators; and

a residual pool scheme would be developed to provide coverage for those employers unable to find a scheme provider in the open market.

Scheme to deal with benefit losses

Let me now elaborate on some of the features I have just mentioned. First of all, the system that would be developed within the MPF to deal with benefit losses. Some groups and individuals have expressed concern about what may happen if one of the constituent schemes of the MPF goes bankrupt. I should emphasise first of all that the Occupational Retirement Schemes Ordinance (ORSO) which governs the operation of voluntary retirement schemes already requires all such schemes to be funded properly; for the assets of a retirement scheme to be maintained separately from those of the employer, and to be used only for the purposes of the scheme; for the financial position of a retirement scheme to be subject to the annual scrutiny of an independent auditor; and for employees to have the right to seek information about their schemes. Moreover, retirement funds held under trust are afforded protection in that all assets belong to the trustee and not to the fund manager and therefore would be recovered in the event of a fund manager going bankrupt.

Nevertheless, we do recognise the fact that in a situation where contributions are mandatory, then we should strengthen the regulation of fund managers and our system of prudential supervision. This we will do. Our role is to minimise risk due to fraud and theft, and ensure prudential supervision and regulation. Within the MPF, a system will be developed, in collaboration with the insurance and fund management industries, to compensate for losses brought about by unlawful activity. Such a system could take the form of a retrospective levy, of a compensation fund, or some other means. I look forward to the support and close co-operation of the industries in this respect.

While on the subject of losses and guarantees, I must stress at this point that Government will not consider under any circumstances providing what would be in effect a taxpayers' guarantee against investment losses. To ask taxpayers to be liable for bad investments decisions made either by contributors in their selection of schemes or by fund managers or investment consultants in the private sector would be fool-hardy. It would serve only to encourage aggressive or unscrupulous fund management, which is what we are seeking to avoid. However, we will be examining how best to minimise the risk of investment loss, for instance by prohibiting over concentration of risks, introducing stricter control of trustees, improving supervision of life insurance companies and requiring adequate capital ratios, ring-fenced assets and transparency of operation.