Be Ready for the October 22 NCUA Fidelity Bond Rule Changes

NCUA Bond Rules and Regs

Produced by Patrick Touhey, Senior Vice President, Bond Division | October 1, 2019

On July 24, 2019 the NCUA finalized a rule amending its regulations regarding fidelity bonds (Parts 704 for corporate credit unions and 713 for natural person credit unions). These rule changes will go live on October 22, 2019.

Below outlines key points under these regulatory changes.

Click here to access a checklist that will help your credit union prepare for this rule change.

Items 1 and 2 fall on the fidelity bond carrier (underwriter) to comply with these new rules

1. Ensure adequate period of discovery of bond claims

Previously, the bond coverage terminates immediately upon the credit union’s liquidation and the insurer (underwriter) has sole discretion to allow for the option to purchase an additional period of time to discover losses.

The new rule requirements are noted below:

  • Involuntary Liquidation - The new rule requires the fidelity bond coverage to include an option for the liquidating agent to purchase coverage in the event of an involuntary liquidation that extends the discovery period for a covered loss for at least one year;
  • Voluntary Liquidation - The fidelity bond coverage will remain in effect, or provide that the discovery period is extended, for at least four months after the final distribution of assets.

2. Clarify documents subject to NCUA board approval and require all bond forms to receive NCUA board approval every 10 years

The NCUA must approve all bond forms before federally insured credit unions may use them. This is a clarification to the existing rule since the NCUA is aware of instances where the renewal or continuation of coverage forms included language that limited the bond coverage and approval was not requested or granted for the changes.

There will now be a sunset on the NCUA bond form approval of 10 years after it has been approved. Any bond forms that were approved before 2019 will expire on January 1, 2029, unless otherwise determined by the NCUA Board. 

Items 3 and 4 fall on the credit union to comply with the new rules

3. Strengthen board of directors oversight

The new rule increases the oversight responsibility of the fidelity bond coverage requiring that the board of directors must annually review its fidelity and other insurance coverage. This will help ensure that coverage is adequate in relation to the potential risks facing the credit union and the minimum requirements set by the NCUA Board.

The board of directors must review all applications for purchase or renewal of its fidelity bond coverage, pass a resolution approving the purchase or renewal and delegate one member of the board, who is not an employee of the credit union, to sign the purchase or renewal agreement and all attachments. No board members may be a signatory on consecutive purchase or renewal agreements for the same fidelity bond coverage policy

4. Permit natural person credit unions to include coverage for certain CUSOs

The new rule does not prohibit a federally insured credit union from having a fidelity bond that also covers its CUSO(s), provided the credit union owns more than 50 percent of the CUSO or the CUSO is fully organized and staffed by the credit union to handle certain business transactions.

This eliminates the need for a separate crime policy for a qualifying CUSO provided you have confirmed the CUSO is an additional insured under the credit union’s bond as evidenced by being listed on the policy declarations page or by endorsement.

Click here to read the Federal Register’s full report on these rule changes.


** If you are a Bond client of Allied Solutions and have questions about how we are supporting these changes, contact your Allied Solutions bond representative.

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For over 20 years, Allied Solutions has been selling and underwriting customizable solutions to keep credit unions protected from unexpected risks. Allied is now the industry's largest independent producer of credit union bond and insurance business with more than 800 clients nationwide and a staff that has unsurpassed technical experience and know-how. It is this commitment and expertise that has helped Allied save clients millions in insurance premiums, and has granted us the highly esteemed 'Preferred Partner' status by NAFCU Services.

Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.

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