Real Role of Mandatory Provident Fund in Hong Kong and Its Far-Reaching Impact on Enterprises and Individuals

The True Role of the Mandatory Levy in Hong Kong and Its Far-Reaching Impact on Enterprises and Individuals

In recent years, as the global economic environment has changed and financial markets have become more volatile, Hong Kong's status as an international financial center has grown increasingly important. However, one institutional arrangement in Hong Kong's financial market is often mentioned the mandatory levy. Many people misunderstand its role, even viewing it as an additional fee. In fact, the mandatory levy plays a crucial role in maintaining market order, protecting investors' rights, and promoting economic development. This article will explore the true meaning of the mandatory levy in conjunction with recent news and analyze its profound impact on enterprises and individuals.

Basic Concept of the Mandatory Levy

The mandatory levy, established by the Hong Kong Securities and Futures Commission SFC to protect investors' interests, is essentially a fee system. In simple terms, when investors engage in stock trading, they must pay a certain percentage of funds as the mandatory levy. These funds do not belong to any single entity but are managed by Hong Kong Securities Clearing Company Limited. They are primarily used to compensate for investor losses caused by brokerage company bankruptcies or breaches of contract. According to the latest data, since the beginning of 2025, the average daily trading amount of Hong Kong's mandatory levy has exceeded HKD 5 billion, showing that the importance of this system has been increasing year by year. Especially under the current situation of intensified global financial market fluctuations, the role of the mandatory levy stands out even more prominently.

Practical Uses of the Mandatory Levy

Recently, media reports indicated that due to the mandatory levy system, thousands of clients affected by the bankruptcy liquidation of a large Hong Kong securities firm received timely compensation. This not only avoided social conflicts but also demonstrated the critical value of the mandatory levy in practical operations. According to the Securities and Futures Ordinance, the main uses of the mandatory levy include, but are not limited to

1. Compensation for Investor Losses When a brokerage company cannot fulfill its contractual obligations due to financial issues, the mandatory levy can be used to compensate for the asset losses of clients.

2. Supporting Market Regulation A portion of the mandatory levy funds is used to strengthen market regulation efforts, ensuring the safety and stability of the entire financial system.

3. Responding to Emergencies In the face of risks caused by natural disasters or other force majeure events, the mandatory levy can provide necessary emergency support. For instance, during a regional financial crisis earlier this year, the mandatory levy quickly activated emergency plans, helping several companies on the brink of collapse overcome difficulties and stabilize market confidence.

Impact on Enterprises

For enterprises, the existence of the mandatory levy creates a fairer and more transparent competitive environment. On one hand, it reduces the possibility of investors suffering significant losses due to the bankruptcy of brokerage firms, enhancing the attractiveness of the capital market; on the other hand, it forces enterprises to focus more on risk management in their daily operations to avoid penalties for violations. Notably, in recent years, an increasing number of enterprises have begun actively participating in the mandatory levy plan. By the end of the third quarter of 2025, statistics show that over 80% of listed companies in Hong Kong have joined the mandatory levy plan. This trend indicates that the mandatory levy has become one of the key indicators for measuring whether an enterprise has long-term development potential.

Impact on Individuals

From an individual perspective, the mandatory levy undoubtedly provides a strong protective umbrella for ordinary investors. Over the past few years, thanks to the existence of the mandatory levy, many small and medium-sized investors have avoided major economic losses caused by the dereliction of duty by individual institutions. The mandatory levy also indirectly lowers investment thresholds, allowing more ordinary people to participate in the capital market.

However, some people hold objections to the mandatory levy, believing that these fees increase transaction costs. To this, professionals point out that although they may increase the burden on small-scale traders in the short term, from a long-term perspective, the security provided by the mandatory levy far outweighs its cost expenditure. Especially against the backdrop of growing global economic uncertainty, the role of the mandatory levy becomes particularly important.

Conclusion

In summary, the mandatory levy in Hong Kong is not merely a simple administrative fee but an indispensable part of the healthy operation of the entire financial market. It effectively enhances the resilience and vitality of the market through means such as compensating for investor losses, supporting market supervision, and responding to emergencies. Whether for enterprises or individuals, understanding and making full use of the mandatory levy system will help better adapt to future complex and ever-changing economic conditions.

Looking ahead, with the continuous development of financial technology, the mandatory levy mechanism is expected to be further optimized and upgraded, creating greater value for more participants. As a senior economist once said the mandatory levy is not only the last line of defense for protecting investors but also an important cornerstone for promoting the common prosperity of society.