Third-Party Disbursement

A customer calls and verbally asks that a check be sent to a named third party from her account. No signed letter of authorization for third-party disbursements to this person is on file. Can cashiering process this request based on the phone call alone?

1. A.Yes -- a verbal request captured and documented by the representative taking the call is equivalent to a signed letter of authorization for third-party disbursement purposes.Wrong. A documented verbal request is not equivalent to a signed letter of authorization.
2. B.Yes, but only if the customer's voice is independently verified by the representative through a separate security question process during the same call.Wrong. Voice verification during the call does not substitute for the required signed letter of authorization.
3. C.No -- a third-party disbursement generally requires a valid, signed letter of authorization on file specifying the third party and the basis for the disbursement, and a verbal phone request alone does not substitute for that documented authorization.Correct. A signed letter of authorization is generally required; a verbal request alone does not substitute for it.
4. D.No, but only because third-party disbursements are never permitted under any circumstances, regardless of what documentation exists.Wrong. Third-party disbursements are permitted with proper documentation; they are not categorically prohibited.

Why: A third-party disbursement is exactly the kind of instruction that calls for documented authorization, not just a phone call. A valid, signed letter of authorization on file, specifying the third party and the basis for the disbursement, is what is generally required before cashiering may release funds to someone other than the account owner -- a verbal request alone, even if documented by the representative taking the call, does not substitute for that signed authorization.

A customer of Sablecrest Brokerage signs a letter instructing the firm to move cash from her individual account to her adult son's individual account, which Sablecrest also carries. How should the cashiering department treat the instruction?

1. A.As a journal, but only on authorization that identifies the receiving account as a third-party account.Correct. Same firm settles the mechanism, while different ownership at the far end still brings the third-party controls into play.
2. B.As a routine journal needing nothing beyond the signed letter, since no money leaves the firm.Wrong. Staying inside the firm answers how the money moves but not the separate question of whose money is being given away.
3. C.As an outgoing wire, because the receiving account belongs to a different person.Wrong. A different owner does not put the money outside the firm, and a wire would push it to an outside institution.
4. D.As a partial account transfer, because assets are moving between two separately owned accounts.Wrong. That process is defined by the two broker-dealers involved, and only one broker-dealer appears anywhere in these facts.

Why: Two questions have to be answered separately, and candidates who answer only the first get the wrong instrument or the wrong controls. The mechanism follows where the money goes: both accounts sit on Sablecrest's books, so the movement is a journal rather than a wire or an account transfer. The authorization follows who owns the money: the receiving account has a different owner, which makes this a third-party disbursement, and the firm must hold authorization identifying it as such rather than processing it under the lighter treatment given to a journal between one customer's own like-registered accounts. Were the son's account instead held jointly with his mother, the money would not be leaving her ownership and the third-party controls would not attach.

Two wire requests reach Havelock Prynne Securities on the same morning, each made by telephone by the account holder, whose identity the firm verifies. Ines Corrance asks that $30,000 be wired from her brokerage account to a savings account at her own bank, held in her own name alone. Bartram Nyle asks that $30,000 be wired from his brokerage account to an account at a different bank in the name of his adult son. The branch manager proposes to treat both requests identically. Is that appropriate?

1. A.No. Bartram's request is a third-party disbursement and requires written authorisation identifying the recipient.Correct. Funds leaving the customer's own name call for written authorisation and heightened verification; a like-named transfer does not.
2. B.Yes. Both customers were identity-verified, and a verified account holder may direct his own funds anywhere.Verification confirms who is calling, not that a transfer out of the customer's name is authorised and genuine.
3. C.No. Bartram's request must be refused outright, because customer funds may never be wired to an account in another person's name.Too absolute. Third-party disbursements are permitted with proper written authorisation and verification.
4. D.Yes, provided the firm records both calls, which supplies the same protection as written authorisation.A recording evidences the call but does not substitute for the written authorisation a third-party disbursement requires.

Why: No. The two requests differ in the way that matters most, which is whether the money leaves the customer's own name. Ines's wire is a FIRST-PARTY transfer between accounts of identical registration: the funds remain hers throughout, and firms generally accept such requests on verified instruction. Bartram's wire is a THIRD-PARTY disbursement, because the receiving account belongs to a different person. That is the classic fact pattern for both fraud and elder exploitation, whether the customer is being impersonated or pressured. Third-party disbursements accordingly require written authorisation from the customer identifying the recipient, and firms commonly apply additional verification before releasing the funds. Treating the two identically would strip the protection from precisely the request that needs it.