The Mandatory Provident Fund (MPF) System marked its 21st anniversary this December, which is the halfway point in its 40-year journey to develop into a mature retirement system. To continue improving the MPF System in response to the growing importance of digitalization and sustainable investing, the MPFA hosted a Symposium where experts from the relevant fields shared their knowledge and experiences on these two issues.

Digital Transformation

Mr Christopher Hui, Secretary for Financial Services and the Treasury and the Guest of Honour of the Symposium, said, “With the collective efforts from the Government, MPFA and the industry, we have commenced the journey of developing the eMPF Platform, an electronic platform that would centralize administration work across trustees, with a view to bringing cost saving and enhanced efficiency to the MPF System.”

Mrs Ayesha Macpherson Lau, Chairman of the MPFA, highlighted the necessity of embracing a digital future for the MPF System. “Digital technologies make our everyday lives easier, and financial services are no exception. There is a growing appetite for financial innovation, and our role is to make it happen.”

To this end, the MPFA has spearheaded the development of the eMPF Platform, which is now underway at full steam. “Based on the application of digital technology, the eMPF Platform will help deepen market competition, provide a better customer experience and, ultimately, improve operational efficiency and reduce MPF administration costs,” Mrs Lau noted.

“The Platform’s success relies not only on the hardware, software and technology applications that go into it, but also the backing of employers, scheme members and the industry,” Mr Cheng Yan-chee, Acting Managing Director of the MPFA, added in his closing remarks. “And it is our joint responsibility to make sure that we fully embrace digital technologies and the opportunities they offer.”

Building a smart Hong Kong

To develop Hong Kong into an international innovation and technology (I&T) hub, Mr Victor Lam, Government Chief Information Officer, gave an overview of the second edition of the Smart City Blueprint for Hong Kong (Blueprint 2.0) put forth by the Hong Kong Government last December.

Building on the success of the first Smart City Blueprint, Blueprint 2.0 contains over 130 initiatives and two new chapters covering six smart areas. In particular, Mr Lam emphasized that one of the initiatives under the area ‘Smart Economy’ is the development of the eMPF Platform.

“The Government attaches great importance to technology applications in various aspects and supports the development of an online platform to facilitate the provision of efficient, cost-effective and secure online dispute resolution and deal-making services in Hong Kong,” he affirmed.

Embracing Fintech and digitalization at the HKMA

Mr Howard Lee, Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA), outlined the HKMA’s Fintech strategy, which aims to encourage the financial sector to adopt technology comprehensively by 2025.

In particular, Mr Lee emphasized the importance of creating a next-generation data infrastructure to stimulate technology adoption within the financial industry. “Since commercial data in Hong Kong is fragmented across different sectors, entities and platforms, we hope to create the Commercial Data Interchange – a consent-based financial data infrastructure that allows different data providers to efficiently and securely share data to data users on one platform through a single connection.”

With regards to the HKMA’s digitalization journey, Mr Lee pointed out that a lot of effort has gone into education, training and knowledge transfer to prepare the organization for a mindset transformation. The HKMA is now prepared to embrace digitalization and adopt the best practices in technology.

eMPF Platform – the latest developments

As the MPF System approaches its 21st anniversary, Ms Cynthia Hui, Executive Director (Members) of the MPFA, shared the strategies and plans on the road ahead for enhancing the MPF System through the development of the eMPF Platform.

“The eMPF Platform is the most significant reform in the history of the MPF System,” Ms Hui noted. “It is a public utility that serves all MPF scheme members and employers and replaces the 12 existing scheme administration platforms with a common electronic platform.” The eMPF Platform aims to enhance user experience and lower MPF fees by standardizing, streamlining and automating MPF scheme administration processes, as well as to create room for MPF System reforms in the future to meet the expectations and needs of the Hong Kong people.

According to Ms Hui, the success of the eMPF Platform requires commitment from the Government and the MPFA, collaboration with the MPF industry and behavioural change from employers and scheme members. Over the years, the MPFA has worked closely with the industry through forums and workshops, and encouraged employers and scheme members to embrace digitalization through publicity and education campaigns.

“We anticipate that the eMPF Platform will be fully operational by 2025. If we join hands and put our efforts together, we will be able to build Hong Kong as a smart city in no time,” Ms Hui concluded.

Timeline

Construction of the eMPF Platform (2021-2022) -> Migration of data from all trustees and schemes to the eMPF Platform (2023-2024) -> The eMPF Platform fully operational (2025)

Digital Transformation in Hong Kong

Drawing the first half of the Symposium to a close, the three speakers gathered for a thought-provoking panel discussion to examine the progress and some of the challenges of digital transformation in Hong Kong.

“I think that Hong Kong people and the city as a whole are pretty much ready to embrace the digital era,” Mr Lam asserted. “Yet, we are also mindful that certain societal groups, such as the elderly and people with disabilities, will require more assistance to integrate into digital life. Therefore, we have organized digital inclusion programmes to help them leverage technological advancement to improve their quality of living and connect to the society.”

Mr Lee emphasized that innovation is a continual process that never ends and that the main impediment to cultivating a culture of innovation is talent. “Hence, the HKMA is working very closely with the Government and universities to nurture more talents as we enter the digital era.”

In terms of the MPF’s digitalization journey, Ms Hui expressed that the Mandatory Provident Fund Schemes (Amendment) Bill 2021 passed in October was very significant in providing continued support for the development of the eMPF Platform. She also contended that reskilling will be the most challenging issue moving forward. “The changing of mindsets and behaviour required from scheme members and employers is not going to be easy because people are used to operating in a certain way.”

“As such, we will continue to help employers, especially SME employers who may not have adequate resources or expertise, to adjust to the transition. We will also continue to reach out to and equip grassroots scheme members so that they can use and enjoy the full benefits of the MPF System through the eMPF Platform” concluded Ms Hui.

Sustainable Investing

Aside from digitalization, the long-term transition towards sustainable investing is another crucial issue affecting the future of the MPF System. On top of financial performance, more and more investors are taking environmental, social and governance (ESG) factors into consideration when making investment decisions.

“The Government views green and sustainable finance as one of the most important opportunities for our financial services industry, and the MPF is no exception. By nature, the MPF is for long-term investment and it would be an ideal source of capital with patience that can enable green transformation,” stated Mr Hui.

As Mrs Lau concurred in her opening address, “Sustainable investing will become the ‘new normal’ in the financial industry, and the MPFA is playing a critical role in this regard. The ‘Principles for Adopting Sustainable Investing in the Investment and Risk Management Processes of MPF Funds’ issued by the Authority laid down a high-level framework that serves to assist MPF trustees in integrating ESG factors into the investment and risk management processes of MPF funds from a financial risk management perspective and to make relevant disclosure to MPF scheme members.”

“We do not underestimate the challenges faced by trustees and understand that many schemes are still at the starting line. To provide further support, we have developed a capacity-building plan to enhance trustees’ knowledge of sustainable investing. We will also work with trustees to raise public awareness on how sustainable investing affects MPF investments,” Mr Cheng concluded in his closing remarks.

Sustainable investing practices

Mr James Robertson, Head of Asia (ex-China and Japan) of the Principles for Responsible Investment Association (PRI), shared some global practices for investing responsibly through integrating ESG issues into the investment analysis and decision-making process.

“The development of a structured approach to responsible investing is crucial to facilitate a more effective analysis of material ESG issues, enable the identification of risk and capture the opportunities associated with these issues,” Mr Robertson continued.

In particular, the PRI has produced guidance to help asset owners ensure formalized ESG incorporation. “As pension fund trustees, there is an obligation to assess the asset managers you appoint and monitor their capabilities and approach to responsible investment,” Mr Robertson stated. “There is also an opportunity here to better serve and provide transparency and options for Hong Kong savers with regards to sustainable investing.”

The management and disclosure of climate-related risks by fund managers

In response to widespread, rapid and intensifying climate change, Ms Linda Yiu, Director of Intermediaries Supervision Department of the Securities and Futures Commission (SFC), highlighted that the SFC has amended the Fund Manager Code of Conduct (FMCC) and issued a circular requiring fund managers to take climate-related risks into consideration in their investment and risk management processes and make appropriate disclosures.

“Fund managers are required to identify the relevant and material climate-related risks and factor them into their investment construction process. They also have to identify, assess, manage and monitor the relevant and material climate risks in their risk management process and apply appropriate tools and metrics in accessing and quantifying climate-related risks,” Ms Yiu explained.

“These new requirements are intended to help increase awareness of the impact of carbon emissions and the associated risks, and to provide quality and comparable information to investors and to help combat greenwashing.”

Sustainable investing for MPF funds

Mr Leo Chu, Chief Operating Officer of the MPFA, highlighted some of the MPFA’s initiatives to integrate ESG principles into the investment and risk management processes of MPF funds.

“ESG issues can have material effects on the company’s financial business operations and performance over the longer term, especially to MPF funds which stretch over decades.” Mr Chu explained. “As such, we have formulated a high-level policy to drive the development of sustainable investing practices for MPF funds. It aims to protect the interests of MPF scheme members and aligns with global and regulatory developments.”

In particular, the MPFA issued the “Principles for Adopting Sustainable Investing in the Investment and Risk Management Processes of MPF Funds”. The guiding principles cover four key elements, providing a high-level framework to assist MPF trustees in adopting sustainable investing for MPF funds.

Moving forward, Mr Chu pointed out that MPF trustees are required to make relevant disclosures in MPF schemes’ annual report for the financial year ending on or after 30 November 2022.

The full version of the Principles can be accessed here.

Principles for Adopting Sustainable Investing in Investment and Risk Management Processes of MPF Funds

GOVERNANCE
MPF trustees should have a governance framework to monitor management of ESG risks by investment managers.

STRATEGY
MPF trustees should formulate an ESG integration strategy at the MPF scheme level.

RISK MANAGEMENT
MPF trustees should ensure the consideration of ESG factors in the investment and risk management processes of MPF funds.

DISCLOSURE
MPF trustees should disclose ESG integration strategies and report implementation progress regularly including the metrics and targets adopted.