Compliance Update with Amy K
by Amy Kleinschmit
Chief Compliance Officer

FinCEN. Earlier this week, the Financial Crimes Enforcement Network (FinCEN), along with National Credit Union Administration (NCUA) and other federal regulators issued a Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing which can be found here. This statement follows the earlier guidance on sharing Bank Secrecy Act (BSA) resources that was issued in October and can be found here.

The agencies, through this recent joint statement, are encouraging banks and credit unions, “to consider, evaluate, and, where appropriate, responsibly implement innovative approaches to meet their Bank Secrecy Act/anti-money laundering (BSA/AML) compliance obligations, in order to further strengthen the financial system against illicit financial activity.” However, the statement also provides that, “the Agencies will not penalize or criticize banks that maintain effective BSA/AML compliance programs commensurate with their risk profiles but choose not to pursue innovative approaches. While banks are expected to maintain effective BSA/AML compliance programs, the Agencies will not advocate a particular method or technology for banks to comply with BSA/AML requirements.”

The Joint Statement discusses the approach the agencies should take when a bank or credit union looks at implementing a pilot program. It is recommended that if a credit union is pursuing an innovative change, early engagement with the NCUA can promote a better understanding of these approaches, as well as provide a means to discuss expectations regarding compliance and risk management.

NCUA – Fidelity Bonds. The NCUA recently issued a proposed rule to amend regulations relating to fidelity bonds. This proposed rule can be found here and is open for comment until January 22, 2019. The Federal Credit Union Act (FCU Act) requires that certain credit union employees and appointed and elected officials be subject to fidelity bond coverage, these requirements are implemented in NCUA regulations Parts 704 and 713.

One of the items on the NCUA Regulatory Reform Task Force’s agenda, that has been previously discussed in the Memo, was to “exploring ways to implement the requirements of the FCU Act in this context in the least costly way possible. The Agenda further notes that while the FCU Act mandates fidelity bond coverage, the NCUA’s objective should be to allow a credit union to make a business decision based on its own circumstances and needs. This would effectively reduce the NCUA’s involvement in a credit union’s operational decisions while remaining consistent with the FCU Act.”

With regard to proposed changes to Part 713 – the proposed rule would clarify that it applies to all federally insured natural person credit unions. The proposed rule would cross reference the requirement in Part 741 that federally insured state-chartered credit unions (FISCU) must comply with Part 713 and would refer to federally insured credit unions (FICUs) throughout the rule instead of federal credit unions.

The proposed rule would add a new paragraph (b) to § 713.2 which would increase a board of directors’ oversight responsibility of its FICU’s fidelity bond coverage. A FICU board would be required to review all applications for purchase or renewal of bond coverage and to pass a board resolution approving the purchase or renewal. The proposed rule would also require a FICU’s board to delegate one board member, who is not an employee of the FICU, to sign the attestation for bond purchase or renewal. This proposal would prohibit the same board member from signing the attestation for renewal in consecutive years.

The board is also proposing to require a FICU’s supervisory committee to conduct a review of all applications for purchase or renewal of fidelity coverage, in addition to the board.

The proposed rule would add paragraph (a)(3) to section 713.3 which would require a FICU to have fidelity bond coverage that includes an option for the liquidating agent to purchase coverage that extends the discovery period, the period to discover and file a claim, for at least two years after liquidation. Paragraph (a)(4)is also proposed to be added to § 713.3 to include a requirement that, for voluntary liquidations, a FICU’s fidelity bond coverage remain in effect, or provide that the discovery period is extended, for at least four months after the final distribution of assets.

The board is proposing to amend § 713.3 to allow a FICU to have a fidelity bond that covers both it and certain of its CUSOs. Under the proposed rule, this would be permissible if the FICU owns greater than 50 percent of a CUSO it wishes to cover, or a covered CUSO is organized by the FICU for the purpose of handling certain of its business transactions and composed exclusively of its employees.

Finally, the proposed rule would clarify the documents subject to board approval and require that all bond forms receive board approval every ten years.


As always, CUAD members may contact Amy Kleinschmit with any compliance related questions or concerns.



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