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 ?
AAgent appointment
BMandate
CAuthorization letter
DPower of attorney
Answer:
B. Mandate
Read Explanation:
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.