NCUA finalized changes to their fidelity bond rule at their July meeting with an effective date of October 22, 2019. The Federal Credit Union Act requires that certain credit union employees and elected officials have fidelity bond coverage.
For natural person federally insured credit unions, the rule generally
- expands credit union board of director oversight of fidelity bond coverage;
- extends the discovery periods after both a voluntary and involuntary liquidation;
- allows for bond coverage of certain credit union service organizations;
- amends which type of bond forms will require NCUA Board approval; and
- establishes a sunset date for NCUA approved bond forms.
The credit union board of directors is responsible for annually reviewing all applications for the purchase or renewal of coverage to ensure that there is adequate coverage. Your board approval of the purchase and renewal of coverage should be documented in the form of a board resolution in the board meeting minutes. A standard industry practice of employees signing renewal documents is no longer acceptable. Once effective, any renewals must be signed by a non-employee and one that is different from the signatory that signed the prior renewal.
Your credit union should start thinking about an appropriate time for the board to review the bond coverage (remember once this rule is effective, bond coverage will need to be reviewed annually). Once you’ve determined the appropriate time for the annual bond review, you’ll need to organize all the relevant materials and forms set for review so these items can be included in the board packet.
If there are any new purchases of bond coverage or renewals at this time, don’t forget there will need to be a board resolution (NCUA wants approvals for new and renewed coverage documented in the board minutes). In addition, remember that non-employees must sign any renewed or new coverage – and the same non-employee cannot sign for any consecutive coverage — so do a quick check to see who signed the renewal last time and don’t use the same person.
What about the basic bond forms found on NCUA’s website? Credit unions can use these forms without further NCUA approval. If a credit union wishes to use a form that is not on the list it will need to obtain prior NCUA approval. The NCUA Board will also need to approve any bond form amendments or changes.
If you have additional questions about your bond coverage or renewal practice, consult with your bond company or examiner.