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

The Mandatory Provident Fund Schemes Authority (MPFA) has announced an update to its guidelines, optimizing the approval process for gold exchange-traded funds (gold ETFs). The approval has been changed from individual approvals to category-based approvals, effective from Tuesday (the 7th), to make it easier for more gold ETFs to enter the market and become 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 that have been individually approved by the MPFA, which are 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 incorporated into the MPF system, the Authority decided to optimize the approval approach for gold ETFs by changing it from individual approval to category-based approval.

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

Maintain the 10% cap on investing in gold ETFs

The 10% cap, under which MPF funds’ investment in gold ETFs may not exceed 10% of the fund’s net asset value, will be maintained. The relevant investment regulatory requirements aim to effectively control investment risk and ensure that plan members’ interests are properly protected.

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