Question

What term describes the process through which one account holder authorizes another to act on their behalf on by way of a simple authority letter ?

• A. Agent appointment
• B. Mandate
• C. Authorization letter
• D. Power of attorney

Answer 1

Answer:

B. Mandate

Mandate in Banking

• A Mandate is a formal instruction or authorization given by an account holder (the principal) to a bank, empowering a third party (the agent) to perform specific transactions or operations on the account.
• It is typically executed via a simple authority letter, which outlines the specific powers granted to the mandated person, such as the ability to sign cheques, withdraw funds, or access account information.
• Unlike a Power of Attorney (POA), which is a formal legal document usually requiring stamp duty and notarization, a mandate is generally a less formal arrangement used for day-to-day operational convenience.
• Key Characteristics:
  • It is strictly limited to the scope defined in the mandate letter.
  • The authority provided by a mandate is revocable at any time by the account holder.
  • The mandate automatically terminates upon the death, insanity, or insolvency of the account holder.
  • The bank remains liable for the acts of the mandated person only to the extent of the authority granted.
• In the context of Cooperative Banking and general banking law, understanding the distinction between a mandate and a POA is crucial for complying with KYC (Know Your Customer) and operational risk management guidelines.