Improving NCUA’s fidelity bond and insurance coverage regulations

NCUA can improve its fidelity bond and insurance coverage regulations without compromising its effectiveness, as outlined in a letter America’s Credit Unions sent Friday. The agency issued a request for comment for renewal of information collection involving fidelity bond and insurance coverage, and Regulatory Advocacy Senior Counsel Luke Martone shared feedback on ways to improve the current rule.

NCUA regulations require a credit union’s board of directors to review and approve fidelity bond coverage, including signing bond renewal documentation. NCUA also requires board approval to follow a rotation of signatories and prescribes procedures for renewal and documentation.

“While fidelity bond coverage is a critical risk-management tool for credit unions of all sizes, these requirements have become increasingly complex over time and now present significant operational challenges, especially for smaller credit unions with limited staff or boards whose meeting schedules do not always align with required approval timelines,” wrote Martone. “The complexity of these procedures appears disproportionate to the risk they are designed to mitigate.”

America’s Credit Unions recommends NCUA:

• Periodically reevaluate whether the requirements remain necessary and whether they continue to achieve their intended objectives.
• Assess the continued necessity of the board signature requirement and determine whether requiring board members to personally sign bond renewals meaningfully reduces risk, or if objectives can be met through other means.
• Allow greater flexibility in the approval processes, including permitting credit unions to delegate fidelity bond review and approval to the supervisory committee, management, or another appropriate governing body, with the board retaining ultimate oversight through periodic reporting or sign-off.
• Consider eliminating or modifying the signatory rotation requirement, which adds complexity without obvious benefit. If retained, credit unions should have discretion to determine how and when to rotate signatories based on how their board is organized.
• Allow the board to review and sign off on coverage once a year, which would greatly reduce scheduling challenges and extra paperwork, especially for smaller credit unions with limited staff.

Read the full letter