4 Key Takeaways for NCUA Fidelity Bond Compliance

NCUA Bond Rules and Regs

By Patrick Touhey, Senior Vice President of Bond, Allied Solutions

This content was originally published on NAFCU Services' Blog 

Last October, the NCUA rolled out policy changes that increased bond oversight responsibilities of a credit union’s board of directors. To keep your credit union informed and compliant, we’ve put together 4 main takeaways: 

1. A credit union’s board of directors must annually review bond coverage.

This will help ensure that coverage meets the minimum requirements set by the NCUA Board.

A credit union’s board of directors must also do the following, on an annual basis:

  • Review all applications for purchase or renewal of fidelity bond coverage.
  • Pass a resolution approving the purchase or renewal.
  • Sign-off on the purchase or renewal agreement and all attachments. 

Click Here to Download a Compliance Checklist for the NCUA Fidelity Bond Rule Amendments

2. The board must review and approve all fidelity bond coverages.

The NCUA continues to raise their expectations and requirements for fidelity bond coverages, insurance carriers, and premiums, in an effort to keep credit unions protected. By expanding a board of directors’ oversight of bond approvals and processes, the NCUA expects that more credit unions may better protect against losses.

For example: Last year, multiple credit unions were dropped by their bond insurance carriers as a result of large unpaid embezzlement claims placing significant financial strain on the credit unions. In these instances, the credit unions’ insurance carriers denied the embezzlement claims related to a material misrepresentation where the employee, who was embezzling, also signed the application warranting there was no knowledge of circumstances for a potential future claim.  Had the updated NCUA rules been in place, a board member not employed with these credit unions would have been mandated to review and sign off on all bond underwriting applications prior to submission. As such, there would have been no material misrepresentations of the warranty question and the claims would have been paid. 

3. The board must become more involved in selecting the credit union’s bond coverage.

Today, credit unions have more choices for their bond coverage than ever before. With last October’s rule changes, the NCUA placed more responsibility on the board of directors to do their due diligence in researching what coverage options are available and advocate for alternative coverage if there is something out there that better protects the credit union’s corporate assets.

These new rules also have the potential to invite insurance carriers to expand their coverage in an effort to differentiate themselves within a more competitive market.  

4. Credit unions’ boards and CEOs should collaboratively evaluate their bond programs on an ongoing basis. 

Getting your board of directors involved in the review and approval of your bond contracts may take some getting used to. However, adopting these new processes will ensure your credit union remains compliant with the new NCUA policies, while at the same time helping your credit union to keep an effective, cost-efficient bond program in place. 

Want to learn more ways board oversight can support credit union risk and loss prevention? Click here to watch our webinar: “NCUA Fidelity Bond Policy for BODs: Reading Between the Lines.”

About Allied Solutions 

Allied Solutions, LLC is one of the largest providers of insurance, lending, and marketing products to financial institutions in the US. Allied Solutions uses technology-based products and services customized to meet the needs of 4,000 clients, along with a portfolio of innovative products and services from a wide variety of providers. Allied Solutions maintains over 16 regional offices and service centers around the country and is a subsidiary of Securian Financial Group, Inc.

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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