New Rules Present New Risks For Credit Union Directors

The establishment of new fiduciary and financial literacy rules for directors of federally chartered credit unions, coupled with economic challenges and more litigation, has greatly increased personal risk exposure for credit union decision-makers.

While this uncertain environment increases the chance of legal action against credit union directors, it also provides an opportunity to establish new practices to protect credit unions and their board members. CUNA Mutual Group’s Credit Union Protection Area advises that there are four keys to protecting directors’ personal assets:

  • Starting with a solid understanding of their fiduciary duties, federal credit union directors must carry out their duties in good faith, and within six months of their election or appointment, they must also gain an understanding of “basic finance and accounting practices.”
  • A second way directors can protect themselves is by establishing and/or broadening their corporate governance process, which can be defined as a set of processes, customs, rules, policies, and laws that guide how an organization such as a credit union is directed and controlled for the benefit of its stakeholders. Examples include establishing a lead director on governance, a whistle-blower policy or a risk oversight policy.
  • Directors should also consider their indemnification options to ensure alignment with the board’s philosophy on risk. Indemnification is where the credit union agrees to reimburse an officer or director for expenses related to claims brought against him or her in his or her capacity as an officer and director. Consult a qualified attorney to help you construct your indemnification agreements. This is particularly important given the newly-adopted rule that limits indemnification.
  • Finally, insurance plays a role. Boards of directors should play an active role in establishing the type and coverage limits for directors and officers insurance.

 

Questions? Contact Sales & Marketing Associate Craig Reed: 206.340.4789, creed@nwcua.org.

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