NCUA Issues Final Rule Changes to Fidelity Bond Coverage

New changes go into effect next month and expand credit union board of director oversight of fidelity bond coverage.

9/4/2019

Compliance image

The National Credit Union Administration (NCUA) issued final rule changes to its fidelity bond coverage that go into effect on Oct. 22. The rule changes expand the credit union board of directors oversight of fidelity bond coverage, allows for bond coverage of certain CUSOs, and makes changes to the types of bond forms that require NCUA Board approval.

The board of directors of a credit union is responsible for annually reviewing all applications for the purchase or renewal of coverage to ensure that there is adequate coverage. The board approval of the purchase and renewal of coverage should be documented in the form of a board resolution in the board meeting minutes. The final rule changes the standard practice of employees signing renewal documents. Employees can no longer sign any renewals. Those must be signed by a non-employee and one that is different from the signatory that signed the prior renewal. 

Any new purchases of bond coverage or renewals will need to be a board resolution which needs to be noted in the meeting minutes.  

Credit unions can use the basic bond forms which are found on the NCUA’s website without further NCUA approval. If a credit union wants to use a form not found on that list, it will need to obtain the NCUA’s approval before using the form.

Question of the Week

Q. What is the NCUA’s regulation on record retention?

A. Credit unions often look to NCUA for guidance on the appropriate length of time to retain various types of operational records. NCUA does not regulate in this area, but as an aid to credit unions it is publishing this appendix of suggested guidelines for record retention. NCUA recognizes that credit unions must strike a balance between the competing demands of space, resource allocation and the desire to retain all the records that they may need to conduct their business successfully. Efficiency requires that all records that are no longer useful be discarded, just as both efficiency and safety require that useful records be preserved and kept readily available.

Questions for Consideration
1. What format should the credit union use for retaining records?

NCUA does not recommend a particular format for record retention. If the credit union stores records on microfilm, microfiche, or in an electronic format, the stored records must be accurate, reproducible and accessible to an NCUA examiner. If records are stored on the credit union premises, they should be immediately accessible upon the examiner’s request; if records are stored by a third party or off-site, then they should be made available to the examiner within a reasonable time after the examiner’s request. The credit union must maintain the necessary equipment or software to permit an examiner to review and reproduce stored records upon request. The credit union should also ensure that the reproduction is acceptable for submission as evidence in a legal proceeding.

2. Who is responsible for establishing a system for record disposal?

The credit union’s board of directors may approve a schedule authorizing the disposal of certain records on a continuing basis upon expiration of specified retention periods. A schedule provides a system for disposal of records and eliminates the need for board approval each time the credit union wants to dispose of the same types of records created at different times.

3. What procedures should a credit union follow when destroying records?

The credit union should prepare an index of any records destroyed and retain the index permanently. Destruction of records should ordinarily be carried out by at least two persons whose signatures, attesting to the fact that records were actually destroyed, should be affixed to the listing.

4. What are the recommended minimum retention times?

Record destruction may impact the credit union’s legal standing to collect on loans or defend itself in court. Since each state can impose its own rules, it is prudent for a credit union to consider consulting with local counsel when setting minimum retention periods.

A record pertaining to a member’s account that is not considered a vital record may be destroyed once it is verified by the supervisory committee. Individual Share and Loan Ledgers should be retained permanently. Records, for a particular period, should not be destroyed until both a comprehensive annual audit by the supervisory committee and a supervisory examination by the NCUA have been made for that period.

5. What records should be retained permanently?

Official records of the credit union that should be retained permanently are:

  • Charter, bylaws, and amendments.
  • Certificates or licenses to operate under programs of various government agencies, such as a certificate to act as issuing agent for the sale of U.S. savings bonds.
  • Current manuals, circular letters and other official instructions of a permanent character received from the NCUA and other governmental agencies.

Key operational records that should be retained permanently are:

  • Minutes of meetings of the membership, board of directors, credit committee, and supervisory committee.
  • One copy of each NCUA 5,300 financial report or its equivalent.
  • One copy of each supervisory committee comprehensive annual audit report and attachments.
  • Supervisory committee records of account verification.
  • Applications for membership and joint share account agreements.
  • Journal and cash record.
  • General ledger.
  • Copies of the periodic statements of members, or the individual share and loan ledger. (A complete record of the account should be kept permanently.)
  • Bank reconcilements.
  • Listing of records destroyed.
6. What records should a credit union designate for periodic destruction?

Any record not described above is appropriate for periodic destruction unless it must be retained to comply with the requirements of consumer protection regulations. Periodic destruction should be scheduled so that the most recent of the following records are available for the annual supervisory committee audit and the NCUA examination.

Records that may be periodically destroyed include:

  • Applications of paid off loans.
  • Paid notes.
  • Various consumer disclosure forms, unless retention is required by law.
  • Cash received vouchers.
  • Journal vouchers.
  • Canceled checks.
  • Bank statements.
  • Outdated manuals, canceled instructions, and nonpayment correspondence from the NCUA and other governmental agencies.

Related Links 

Appendix A to Part 749

Legal Briefs

Consumer Financial Protection Bureau (CFPB)

CFPB released the 2019 report on the state of the consumer credit card market, which covers how the cards are used, the price consumers pay for using them, the availability of credit, and other topics.

Federal Financial Institutions Examination Council (FFIEC)

FFIEC adopted revised interagency examination procedures for the Flood Disaster Protection Act.

FFIEC emphasized the benefits of using a standardized approach to assess and improve cybersecurity preparedness.

FFIEC released 2018 HMDA data.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of Aug. 30, 2019. The last update prior to this was Aug. 28, 2019.

Questions? Contact the Compliance Hotline: 1.800.546.4465; [email protected].