【MPF】 The Mandatory Provident Fund Schemes Authority announces optimization of the approval mechanism for gold ETFs, shifting from individual approvals to category-based approvals

The Mandatory Provident Fund Schemes Authority (MPFA) announced an update to its guidelines, optimizing the approval process for exchange-traded funds (gold ETFs). Instead of individual approvals, approvals will be granted by category, effective from Tuesday (the 7th), to enable more gold ETFs to be added to the market as investment options for MPF funds.

The MPFA said it understands that gold ETFs provide a low-cost, high-liquidity and transparent way to invest in gold. Under the current MPF legal framework, there are already two gold ETFs individually approved by the MPFA that have become permitted investment items for MPF funds, allowing MPF funds to invest in the gold market through gold ETFs.

Smooth operations since gold ETFs were included in the MPF system

A spokesperson for the MPFA said that, while balancing investment flexibility with risk, and taking into account that operations have been smooth since gold ETFs were included in the MPF system, it has decided to optimize the gold ETF approval approach by shifting from individual approvals to category-based approvals.

After the optimization, a gold ETF only needs to meet the MPFA’s specified criteria, including that it must be authorized by the Securities and Futures Commission and listed on the Hong Kong Stock Exchange, that it is a physical gold ETF, and that the gold ETF has not been classified as a derivatives fund. It can then become a permitted investment item for MPF funds without the MPFA granting an individual approval.

Maintain the 10% cap for investing in gold ETFs

The 10% cap on MPF funds’ investment in gold ETFs, relative to the fund’s net asset value, will be maintained. The relevant investment rules are intended to effectively control investment risk and ensure members’ interests are properly protected.

In addition, the MPFA said it welcomes the government’s proposal to submit to the Legislative Council, in the fourth quarter of this year, a draft bill to amend the MPF legislation. The bill includes a proposal to relax the requirement so that MPF funds can invest at the same time in fund components approved by the MPFA—namely approved pooled investment funds and index-tracking collective investment schemes—and in individually approved investment items, such as gold ETFs and real estate investment trust funds, among others. If the proposal is implemented, it will help enhance the flexibility of fund investment, enabling the industry to make better use of permitted investment asset classes, including gold ETFs, to diversify risk and increase the potential for fund returns.