• Kennedy Masterton-Smith, Director |

Has it been a long-time coming, and has the COVID-19 pandemic accelerated the move to electronic signatures? On the 20 April 2020 the Financial Conduct Authority (FCA) published ‘Firms should consider the legal position themselves’ and here I give an overview of the key legal and regulatory factors to consider in relation to electronic signatures.

How has COVID-19 had an impact?

Following the implementation of the COVID-19 lockdown, financial services entities have needed to adapt and review their processes without delay to provide continuity of services to their customers. This has included an increased acceptance of electronic signatures.

What is an electronic signature?

These are defined broadly in law and can include:

  • Typing a name into a contract or into an email containing the contract’s terms
  • Clicking an “I accept” button on a website
  • Pasting a signature in the form of an image into an electronic contact
  • Using a web-based electronic signature platform to generate:
  • an electronic representation of a handwritten signature; or
  • a digital signature using public key encryption technology and backed by a digital certificate from the provider (or a trusted third party) verifying the identity of the signatory

What is the validity of electronic signatures?

In very recent legal developments, including confirmation from the government in March 2020 and the Law Commission in autumn 2019, an electronic signature has been designated as capable in law of being used in commercial and consumer situations. Banks, insurance companies, retailers and airlines have all been successful in moving their consumer contracting to online platforms, ticking a box to accept the financial agreement terms and conditions.

Does the FCA allow electronic signatures?

The FCA has expressly advised authorised firms to consider the legal position of electronic signatures.

The FCA’s rules do not explicitly require wet-ink signatures in agreements or prevent firms from using electronic signatures in agreements. However, there are related requirements, and the FCA directs firms to consider:

  • A review of the risks and harms of using electronic signatures and take appropriate steps to minimise those (Principles for Businesses 2, 3 and 6); and
  • A client’s best interests rule and the fair, clear and not misleading rule to ensure that when a client signs a document electronically, this does not make it more difficult for the client to understand what they are agreeing to (COBS Rules)

Key considerations for electronic signatures

Firms do need to make sure certain factors have been considered to ensure the validity of their electronic signatures, these include:

  • Intention: the customer must have intended to sign and be bound by the document.
  • Evidential: the firm must retain evidence that the customer entered into the agreement or other document, and the content of those agreements or other documents. All surrounding phone calls, emails and letters of communications could be used in legal proceedings if the signature was ever in question.
  • Understanding: ensuring that the customer does not enter into the transaction without an understanding of what they are doing and a firm must have protective measures for more vulnerable customers.
  • Security: consider measures to provide comfort around security and reliability, for example, additional anti-fraud measures.
  • Labelling: making it clear to customers what kind of a document it is and what its effect is to be.
  • Formalities: all other formalities specified under statute, regulation or as set out in that agreement must be satisfied, for example, if it needs to be witnessed.

As lockdown measures are reduced or altered over the coming months we would expect the use of electronic signatures to stay because of ease of use and procedures having been embedded. Although clicking a button may seem like a simple option, there are legal and regulatory factors to consider and we look forward to supporting further clients in de-risking the use of electronic signatures as much as possible.