Our recent update commented on the broad aim of the changes proposed to be made to the Occupational Retirement Schemes Ordinance (ORSO) by the ORS (Amendment) Bill 2019. This update dives deeper into the Bill to identify three of the ugliest or weirdest "devils" in the details of the Bill.
Devil 1 - Increased powers for the Registrar
The Bill grants the Registrar of Occupational Retirement Schemes materially increased powers of investigation. Such powers are broadly fine as they bring the Registrar in line with other Hong Kong regulators.
However, the Bill also looks to grant the Registrar the unilateral power to "impose conditions for [exemption/registration]" as "the Registrar considers appropriate". Such broad (and unfettered) power could be a concern for employers and the retirement scheme industry generally. In effect, it would give the Registrar quasi-legislative powers to determine the circumstances under which schemes can be exempted or registered under ORSO.
The Bill also replaces the current obligation of the Registrar to register a scheme which satisfies each of the specified statutory conditions with a discretion. As such, even where a scheme satisfies all required conditions the Registrar will, if the Bill is approved in its current form, be able to refuse to register such scheme.
Devil 2 - Codification of trust law obligations into ORSO
Over the course of several centuries, the general principles of trust law have been determined by the courts and such determinations have resulted in many thousands of pages of judgments and academic tomes. Such writings include a comprehensive analysis of how trustees should act and the extent of their obligations under different circumstances (also known as the "fiduciary obligations" of trustees).
The Bill attempts to condense the fiduciary obligations of trustees into around 160 words. There is no explanation as to why this is considered necessary. There is also no analysis on the impact such codification of fiduciary obligations may have on the rights of a beneficiary of the trust (for instance, will an aggrieved beneficiary now have to bring an action for breach of statutory duty as opposed to breach of fiduciary duties?).
Rather strangely, the Bill also contains an obligation on the employer of a retirement scheme which is applying for registration to confirm that the trustee has complied with the relevant obligations set out in the 160 words purporting to describe the fiduciary obligations of a retirement scheme trustee. Precisely how any employer will satisfy itself that it can give such confirmation will, no doubt, be a cause of considerable discussion between the employer and the trustee.
Devil 3 – Amended definition of "occupational retirement scheme"
ORSO came into being in 1995 as a direct result of the Mirror Group/Robert Maxwell pension scandal in the early 1990s, which involved the theft of several hundred million pounds worth of Mirror Group Pension Fund assets. ORSO created an oversight structure designed to ensure that "occupational retirement schemes" set up for Hong Kong employees were properly funded and the assets appropriately secured.
To this end, the original (and current) definition of "occupational retirement scheme" was drafted in a broad manner to capture as many of these post-termination-of-employment-promise type arrangements as possible.
The Bill will narrow the definition of "occupational retirement scheme" by inserting a condition that only a scheme limiting its membership to employees or former employees will fall within such definition of "occupational retirement scheme". Therefore, a current or future scheme that admits (or is drafted in a manner such that it could admit) even one person who is not an employee (or former employee) will cease to be an "occupational retirement scheme" for the purposes of ORSO. As such, it means that (1) such an arrangement is not governed by ORSO at all, and (2) such an arrangement is therefore not subject to any of the structural, funding or investment restrictions imposed by ORSO.
This would be a bizarre outcome and, we can only assume, is not the intention. This "devil" may well be a mistake!