12 Cfr 704.18 (1-1-18 Ed)

§ 704.16

12 CFR Ch. VII (1–1–18 Edition)

might be asserted by the client corporate credit union, other than claims
for punitive damages; or
(3) Limit the remedies available to
the client corporate credit union.
(ii) Engagement letters may include
alternative dispute resolution agreements and jury trial waiver provisions
provided that the letters do not incorporate any limitation of liability provisions
set
forth
in
paragraph
(d)(3)(i)(B) of this section.
(4) Outside counsel. The supervisory
committee of any corporate credit
union must, when deemed necessary by
the committee, have access to its own
outside counsel.
(e) Internal audit. A corporate credit
union with average daily assets in excess of $400 million for the preceding
calendar year, or as ordered by NCUA,
must employ or contract, on a full- or
part-time basis, the services of an internal auditor. The internal auditor’s
responsibilities will, at a minimum,
comply with the Standards and Professional Practices of Internal Auditing,
as established by the Institute of Internal Auditors. The internal auditor will
report directly to the chair of the corporate credit union’s supervisory committee, who may delegate supervision
of the internal auditor’s daily activities to the chief executive officer of the
corporate credit union. The internal
auditor’s reports, findings, and recommendations will be in writing and
presented to the supervisory committee no less than quarterly, and will
be provided upon request to the IPA
and NCUA.
[76 FR 23868, Apr. 29, 2011, as amended at 80
FR 25939, May 6, 2015]

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§ 704.16 Contracts/written agreements.
Services, facilities, personnel, or
equipment shared with any party shall
be supported by a written contract,
with the duties and responsibilities of
each party specified and the allocation
of service fee/expenses fully supported
and documented.
§ 704.17 State-chartered
corporate
credit unions.
(a) This part does not expand the
powers and authorities of any statechartered corporate credit union, beyond those powers and authorities pro-

vided under the laws of the state in
which it was chartered.
(b) A state-chartered corporate credit
union that is not insured by the
NCUSIF, but that receives funds from
federally insured credit unions, is considered
an
‘‘institution-affiliated
party’’ within the meaning of Section
206(r) of the Federal Credit Union Act,
12 U.S.C. 1786(r).
(c) NCUA will notify, consult with,
and provide explanation to the appropriate state supervisory authority before taking administrative action
against a state-chartered corporate
credit union.
§ 704.18 Fidelity bond coverage.
(a) Scope. This section provides the fidelity bond requirements for employees and officials in corporate credit
unions.
(b) Review of coverage. The board of
directors of each corporate credit
union shall, at least annually, carefully review the bond coverage in force
to determine its adequacy in relation
to risk exposure and to the minimum
requirements in this section.
(c) Minimum coverage; approved forms.
Every corporate credit union will
maintain bond coverage with a company holding a certificate of authority
from the Secretary of the Treasury. All
bond forms, and any riders and endorsements which limit the coverage
provided by approved bond forms, must
receive the prior written approval of
NCUA. Fidelity bonds must provide
coverage for the fraud and dishonesty
of all employees, directors, officers,
and supervisory and credit committee
members. Notwithstanding the foregoing, all bonds must include a provision, in a form approved by NCUA, requiring written notification by surety
to NCUA:
(1) When the bond of a credit union is
terminated in its entirety;
(2) When bond coverage is terminated, by issuance of a written notice,
on an employee, director, officer, supervisory or credit committee member;
or
(3) When a deductible is increased
above permissible limits. Said notification shall be sent to NCUA and shall
include a brief statement of cause for
termination or increase.

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National Credit Union Administration

§ 704.19

(d) Minimum coverage amounts. (1) The
minimum amount of bond coverage
will be computed based on the corporate credit union’s daily average net
assets for the preceding calendar year.
The following table lists the minimum
requirements:
Minimum
bond
(million)

Daily average net assets
Less than $50 million ........................................
$50–$99 million .................................................
$100–$499 million .............................................
$500–$999 million .............................................
$1.0–$1.999 billion ............................................
$2.0–$4.999 billion ............................................
$5.0–$9.999 billion ............................................
$10.0–$24.999 billion ........................................
$25.0 billion plus ................................................

$1.0
2.0
4.0
6.0
8.0
10.0
15.0
20.0
25.0

(2) It is the duty of the board of directors of each corporate credit union
to provide adequate protection to meet
its unique circumstances by obtaining,
when necessary, bond coverage in excess of the minimums in the table in
paragraph (d)(1) of this section.
(e) Deductibles. (1) The maximum
amount of deductibles allowed are
based on the corporate credit union’s
leverage ratio. The following table sets
out the maximum deductibles, except
that in each category the maximum deductible shall be $5 million:
Leverage ratio

Maximum deductible

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Less than 1.0 percent ......
1.0–1.74 percent ..............
1.75–2.24 percent ............
Greater than 2.25 percent

7.5 percent of Tier 1 capital.
10.0 percent of Tier 1 capital.
12.0 percent of Tier 1 capital.
15.0 percent of Tier 1 capital.

(2) A deductible may be applied separately to one or more insuring clauses
in a blanket bond. Deductibles in excess of those showing in this section
must have the written approval of
NCUA at least 30 calendar days prior to
the effective date of the deductibles.
(f) Additional coverage. NCUA may require additional coverage for any corporate credit union when, in the opinion of NCUA, current coverage is insufficient. The board of directors of the
corporate credit union must obtain additional coverage within 30 calendar
days after the date of written notice
from NCUA.
[62 FR 12938, Mar. 19, 1997, as amended at 67
FR 65657, Oct. 25, 2002; 76 FR 79533, Dec. 22,
2011; 80 FR 25939, May 6, 2015]

§ 704.19 Disclosure of executive compensation.
(a) Annual disclosure. A corporate
credit union must annually prepare
and maintain a disclosure of the dollar
amount of compensation paid to its
most highly compensated employees,
including compensation from any corporate CUSO in which the corporate
has invested or made a loan, in accordance with the following schedule:
(1) For corporate credit unions with
forty-one or more full time employees,
disclosure is required of the compensation paid to the five most highly compensated employees;
(2) For corporate credit unions with
between thirty and forty-one full time
employees, disclosure is required of the
compensation paid to the four most
highly compensated employees;
(3) For corporate credit unions with
thirty or fewer full time employees,
disclosure is required of the compensation paid to the three most highly compensated employees; and
(4) In all cases, compensation paid to
the corporate credit union’s chief executive officer must also be disclosed, if
the chief executive officer is not already included among the most highly
compensated employees described in
paragraphs (a)(1) through (a)(3) of this
section.
(b) Availability of disclosure. Any
member may obtain a copy of the most
current disclosure, and all disclosures
for the previous three years, on request
made in person or in writing. The corporate credit union must provide the
disclosure(s), at no cost to the member,
within five business days of receiving
the request. In addition, the corporate
must distribute the most current disclosure to all its members at least once
a year, either in the annual report or
in
some
other
manner
of
the
corporate’s choosing.
(c) Supplemental information. In providing the disclosure required by this
section, a corporate credit union may
also provide supplementary information to put the disclosure in context,
for example, salary surveys, a discussion of compensation in relation to
other credit union expenses, or compensation information from similarly
sized credit unions or financial institutions.

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