A fidelity bond covers policyholders for losses caused by fraudulent or dishonest acts of its employees. Even though they are called bonds, they are really insurance policies, and often they are referred to as Employee Dishonesty Policies or Commercial Crime Policies.
Fidelity bonds are generally not required by a government entity, but instead by private businesses. It is also common for financial services companies to show proof of a fidelity bond as a prerequisite to obtaining a business license. Obtaining fidelity bond coverage not only helps protect a business, but it offers a representation that the business is honest and reputable.