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Transitioning to e-Signatures, Part 1

By: Michael Scheibach

The increased use of online banking and digital transactions over the past decade has resulted in the implementation of myriad new technologies designed to better serve existing customers, attract new customers, streamline operations and, in the best of cases, reduce costs. Although not new, one technology gaining wider acceptance among financial institutions that meets all these objectives is the electronic signature. And with the majority of signature transactions expected to be originated on a mobile device by 2020, FIs need to be fully committed to offering e-signatures on any document transmitted electronically.

“Banks aren’t having an issue with the acceptance of electronic signatures,” said Michael Laurie, vice president and co-founder of Silanis Technology, a leader in enterprise e-signatures. “The biggest challenge for banks is adapting long-established paper processes to electronic ones. Redesigning a workflow must take into account how that business process should be completed electronically to ensure compliance with existing regulations, while still offering the flexibility to adjust the process in the changing regulatory landscape.”

E-signatures have been around for nearly two decades. California, Utah and a handful of other states enacted digital signature legislation in the mid-1990s, several years before passage in 2000 of the ESIGN Act, which allows the use of electronic signatures in business and consumer transactions if the consumer has consented to such use and has not withdrawn such consent. ESIGN, however, defers at the state level to the Uniform Electronic Transactions Act (passed in 1999 and adopted by most states and the District of Columbia) and other laws that do not contradict the baseline rules in ESIGN, according to David Whitaker, counsel for the Electronic Signature and Records Association and counsel at BuckleySander LLP.

“Both of these laws adopted a broad, flexible definition of what constitutes an ‘electronic signature’ that has permitted U.S. businesses and consumers great flexibility in creating electronic signature solutions that fit a specific situation or type of transaction,” said Whitaker. “By any measure, the ESIGN/UETA combination has been an unqualified success, especially in connection with banking and financial services. Millions of banking and financial services transactions are completed each year that rely on the rules established by the E-SIGN/UETA structure for an effective electronic signature.”

Whitaker also points out that e-commerce laws place the responsibility for establishing attribution (the identity of the signer) and the intent to create a signature on the person seeking to rely on, or enforce, the signature. Moreover, both ecommerce laws and the rules of evidence established by U.S. courts require the person offering a signed electronic record as evidence to be prepared to demonstrate its integrity; therefore, a financial institution either deploying electronic signature solutions, or accepting electronically signed records from other parties, has to consider these requirements.

“The same rules of evidence apply to electronic transactions as paper,” said Laurie, a board member of ESRA. “With a growing body of case law now in place after a decade, the outcome is a focus on the ‘process’ used to design and execute the transaction and capture the evidence. This is what is used in the case of a dispute.”

A bank can accomplish this in two ways simultaneously, says Laurie. First, a workflow needs to be designed that meets compliance needs; second, a bank must implement an e-signature solution that not only gathers extensive data of the signatures and data within the e-signed document, but also links the e-signed document to the process that was used to execute the transaction and that is easily reproduced for the court.”

Next month’s column examines compliance and impact of smartphones and tablets on e-signatures. 

Michael Scheibach is executive editor of BankNews.

Copyright (c) February 2014 by BankNews Media