ABC Credit Union - League InfoSight



Director Financial Literacy Policy

The following sample policy is provided as a guide to assist your credit union in developing a customized policy on the above referenced topic. All applicable laws and regulations must be thoroughly researched and each policy revised to accommodate your credit union’s unique situation and operations.

Introduction

The board of directors of ABC FCU is charged with the general direction and control of the credit union. The key measure of the credit union’s success or failure is its financial statements. As such, a director must understand these financial statements to participate in a meaningful manner in the direction and control of the institution. Accordingly, to be an effective director, an individual must have a certain base level of financial skills, consistent with the size and complexity of ABC FCU.

Guidelines

The decision to serve as a director is a commitment to ABC FCU and our members, and part of this commitment includes a responsibility to understand the financial statements, risks and controls of the credit union so as to properly exercise authority over the credit union’s direction. Each director shall have at least a working familiarity with credit union basic finance and accounting practices, including the ability to read and understand the credit union’s balance sheet and income statement and the ability to ask, as appropriate, substantive questions of management and auditors. To ensure that a director obtains this level of financial literacy as set forth in NCUA 701.4, ABC FCU provides periodic training and makes other resources available to volunteer officials, as outlined in this policy.

Minimum Educational Requirements

1. At a minimum, every ABC FCU director should be able to examine the credit union’s balance sheet, income statement and be able to answer the following questions:

● What does this line item mean?

● Why is it important to the credit union?

● Is the value of the line item changing over time? If so, what does that change (either positive or negative) mean?

● Is the change important to the credit union?

2. A director shall understand the specific activities in which ABC FCU engages, including not only how these activities generate revenue for ABC FCU but also the various risks associated with these activities that could lead to financial loss.

3. Directors shall have a working understanding of the basic risks found in credit unions, including the following:

a. Credit risk

b. Liquidity risk

c. Interest rate risk

d. Compliance risk

e. Strategic risk

f. Transaction risk

g. Reputation risk

Directors shall understand the internal control structures at the credit union that limit and control these risks.

Timetable for Acquiring Financial Skills

Directors elected/appointed on or after January 27, 2011

- Any newly elected/appointed director who came to the position without the requisite financial skills will have six months from the date of election or appointment to meet the minimum financial literacy requirements set forth above

- Any newly elected/appointed director who already understands ABC FCU’s financial statements and risk controls will not have to do anything further to meet the financial requirements of NCUA’s directors’ duties rule.

Directors elected/appointed prior to January 27, 2011

- Sitting directors who do not have the minimum financial literacy requirements set forth above have until July 27, 2011 to satisfy the minimum financial standards.

- Sitting directors who already understand ABC FCU’s financial statements and risk controls will not have to do anything further to meet the financial requirements of NCUA’s directors’ duties rule

At the board meeting immediately following the ABC FCU annual meeting and election of officers each year, the financial literacy of newly elected/appointed directors will be assessed and a training plan will be developed to ensure that the 6-month timeline is met.

Although annual training is not a requirement, ABC FCU is strongly committed to the financial literacy of our directors. Periodic training on financial statements is provided and attendance is encouraged for all directors. Further, as new products and services are added, directors will be provided with the necessary resources and information to ensure that they have an understanding of not only how these activities generate revenue for ABC FCU but also the various risks associated with these activities that could lead to financial loss.

Resources for Acquiring Financial Skills

The following educational opportunities are made available to ABC FCU directors:

- Internal credit union training

- External credit union training, provided by the Louisiana Credit Union League, CUNA & Affiliates, NCUA, local colleges/universities, or vendors (before accepting training from any vendor, the vendor will undergo a thorough due-diligence investigation); this training may take the form of a conference, seminar, webinar, teleconference, or other means

- Self-study courses provided by the Louisiana Credit Union League and CUNA & Affiliates; this training may take the form of an internet-based training program, self-study manual/handbook, or a narrated presentation or video to be viewed online

- On-the-job experience

Periodic training for sitting directors, as well as training for newly elected/appointed directors will be coordinated by the training manager and compliance manager.

Applicable regulation(s)

NCUA 701.4: General authorities and duties of Federal credit union directors

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