by Amy Kleinschmit, Director of Compliance

Pursuant to NCUA Rules and Regulations, credit unions are required to meet certain requirements for fidelity bonds for employees and officials and for other insurance coverage for losses such as theft, holdup, vandalism, etc, caused by persons outside of the credit union. These requirements are found under 12 CFR 713 which apply to Federal Credit Unions.  12 CFR 741.201 applies the fidelity bond coverage requirements to any federally insured credit union.

As required under NCUA rules and regulations, the credit union’s bond coverage, at a minimum, must “be purchased in an individual policy from a company holding a certificate of authority from the Secretary of the Treasury; and include fidelity bonds that cover fraud and dishonesty by all employees, directors, officers, supervisory committee members, and credit committee members.” 12 CFR 713.3

The minimum required amount of fidelity coverage is determined based on the credit union’s total assets. Additionally, the maximum amount of allowable deductible is based on a credit union’s asset size and capital level. Therefore, it is recommended that credit unions periodically review their limit of coverage to make sure it is meeting the requirements. This is especially true during periods of asset growth.

While the regulations only require certain minimum amounts of coverage based on asset size, the regulations stress that a credit unions board of directors should purchase additional or enhanced coverage when its circumstances warrant. “In making this determination, a board of directors should consider its own internal risk assessment, its fraud trends and loss experience, and factors such as its cash on hand, cash in transit, and the nature and risks inherent in any expanded services it offers such as wire transfer and remittance services.” 12 CFR 713.5(b)

It is the responsibility to the credit union’s board of directors to “at least annually review its fidelity and other insurance coverage to ensure that it is adequate in relation to the potential risks facing the credit union and the minimum requirements set by the Board.” 12 CFR 713.2 Additional information on Board of Directors responsibilities can be found on InfoSight under the channel “Board Responsibilities.”

Should you have any questions on this or any other compliance topic, please do not hesitate to contact Amy Kleinschmit at akleinschmit@cuad.coop or 701.214.9721.