【MPF】The Mandatory Provident Fund Schemes Authority announced an optimization of the approval mechanism for gold ETFs, shifting from individual approvals to approvals by category.

The Mandatory Provident Fund Schemes Authority (MPFA) announced an update to its guidelines, optimizing the approval process for exchange-traded funds (gold ETFs) that trade in gold. The approval approach will change from individual approvals to approvals by category, effective from Tuesday (the 7th), to allow more gold ETFs to be added to the market as options that MPF funds can invest in.

The MPFA said it understands that gold ETFs provide a low-cost, high-liquidity and transparent way to invest in gold. Under the existing framework of the Mandatory Provident Funds legislation, two gold ETFs have already been individually approved by the MPFA and have become permitted investment items for MPF funds, enabling 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 and risk, and having regard to the smooth operation since gold ETFs were included in the MPF system, it decided to optimize the approval method for gold ETFs—changing it from individual approvals to approvals by category.

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

Maintain the 10% cap on investing in gold ETFs

The 10% cap on MPF funds’ investment in gold ETFs based on the fund’s net asset value will remain. The relevant investment rules are intended to effectively control investment risk and ensure that the interests of scheme members are properly protected.

In addition, the MPFA said it welcomes the government’s plan to submit to the Legislative Council in the fourth quarter of this year a draft bill to amend the Mandatory Provident Funds legislation. The draft includes a proposal to relax the requirement for MPF funds to invest at the same time in fund components approved by the MPFA—namely approved pooled investment funds and index-tracking collective investment schemes—and individual permitted investment items, such as gold ETFs and real estate investment trust funds. If the proposal can be implemented, it will help enhance the flexibility of fund investments, facilitate the industry’s effective use of permitted asset classes including gold ETFs, to diversify risk and improve the potential for fund returns.