Replacing wet signatures

The current stay at home rules mean that advisers are having to find ways to deal with clients remotely. The bits that were traditionally done face to face are relatively easy to do using a combination of video conferencing, telephone and email but what about when a client signature is required and snail mail could cause too much delay?

This is when you need to consider alternatives to a ‘wet signature’ on a piece of paper.

Do you need a wet signature at all?
Now would be a good time to consider whether you need a wet signature at all. Can you rethink your processes to remove any of the places where in the past you would have obtained one. In our experience, firms often obtain signatures on documents that are not actually necessary, for example on a fact find, risk questionnaire or terms of business. There is a belief in some firms that a client signature on the fact find offers protection in the event of a complaint. Experience tells us that belief is misplaced but it is not appropriate to go into detail here.

The only documents that require a signature at the disclosure / fact finding stage of the advice process are:

  • the service fee agreement in order to create a contract for the firm to provide initial and/or ongoing advice service and the client to pay for it; and
  • the data protection consent document (which should be a document separate from any other) and then only if the lawful basis the firm has chosen for processing data is ‘consent’ – many firms operate purely on a ‘contract’ basis, and that does not need any signature.

Beyond that, firms will need some sort of client authorisation for any advisory rebalance of model portfolios and providers/platforms may need wet signatures on some documents although many have been working to reduce if not remove the need for wet signatures.  And some are adopting different temporary processes currently if advisers are finding it difficult to obtain any wet signatures that are required during the health emergency.

Firms should check urgently with their regular platforms and providers what the signature requirements are.

Digital or E-Signatures
The answer to all of these issues is, of course, already in existence and has been for a couple of decades – digital or e-signatures. The problem with these and the reason why they are not already fully embedded in our processes is to do with what will be recognised by a Court in the event of a legal dispute where a contract has been completed on the basis of an electronic signature.

For years there has been much debate in the legal profession as to the legal validity of electronic signatures.

In fact, there are two aspects that must be considered, admissibility and validity. 

With regard to admissibility, i.e. the ability of Courts to accept the digital signature as having given effect to a contract, Regulation (EU) No 910/2014 took direct effect in EU member states from 1 July 2016 and established an EU-wide legal framework for electronic signatures. The eIDAS Regulation defines: 

  • an ‘electronic signature’ as ‘data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign’
  • an ‘advanced electronic signature’ as one which meets the following requirements:

(i)  it is uniquely linked to the signatory
(ii) it is capable of identifying the signatory
(iii) it is created using electronic signature-creation data that the        signatory can, with a high level of confidence, use under his sole control, and
(iv) it is linked to the data signed therewith in such a way that any subsequent change in the data is detectable, and

  • a ‘qualified electronic signature’ is ‘an advanced electronic signature that is created by a qualified electronic signature creation device, and which is based on a qualified certificate for electronic signatures’.

Articles 25(2) and (3) of the eIDAS Regulation provide that a qualified electronic signature has the equivalent legal effect of a handwritten signature and will be recognised in all member states.

However, qualified electronic signatures are not commonly used in England currently so it is fortunate that Article 25(1) of the eIDAS Regulation also provides that an electronic signature would not be denied legal effect and admissibility as evidence in legal proceedings solely on the grounds that it is in an electronic form or that it does not meet the requirements for qualified electronic signatures and that it is for national law to define the legal effect of electronic signatures. That law in the UK is the Electronic Communications Act 2000 (ECA 2000).

The ECA 2000 provides a statutory framework for the admissibility of electronic signatures in England and Wales. Section 7(1) of the ECA 2000 provides that in any legal proceedings:

  • an electronic signature incorporated into or logically associated with a particular electronic communication or particular electronic data, and
  • the certification by any person of such a signature shall each be admissible in evidence in relation to any question as to the authenticity or integrity of the communication or data.

Although the ECA 2000 deals with the admissibility of electronic signatures, it does not deal with the validity of electronic signatures. So it is prudent for you to consider, security, potential for fraud and ensuring that the ‘signature’ will stick if challenged. Some types of contract are covered by statutory requirements with regard to structure form and would require one of the formal legally defined signatures.

However, in the absence of any statutory requirement, there is no need under English law for contracts to be in any particular form; in fact they can be entered into orally, provided there is offer and acceptance, consideration, certainty of terms and an intention to be legally bound. Therefore, a simple contract like a client service / fee agreement, may be concluded using an electronic signature that does not meet the standards for advanced or qualified signatures.

Law Commission report brings legal clarity
The legal debate has finally been pinned down by the publication of a government commissioned study by the Law Commission on the ‘Electronic execution of document’. You can access the study here, but its findings can be summarised as follows:

  • An electronic signature is capable in law of being used to execute a document (including a deed) provided that (i) the person signing the document intends to authenticate the document and (ii) any formalities relating to execution of that document are satisfied.
  • Such formalities may be required under a statute or statutory instrument, or may be laid down in a contract or other private law instrument under which a document is to be executed. The following are examples of formalities that might be required: (i) that the signature be witnessed; or (ii) that the signature be in a specified form (such as being handwritten).
  • An electronic signature is admissible in evidence in legal proceedings. It is admissible, for example, to prove or disprove the identity of a signatory and/or the signatory’s intention to authenticate the document.
  • Save where the contrary is provided for in relevant legislation or contractual arrangements, or where case law specific to the document in question leads to a contrary conclusion, the common law adopts a pragmatic approach and does not prescribe any particular form or type of signature. In determining whether the method of signature adopted demonstrates an authenticating intention the courts adopt an objective approach considering all of the surrounding circumstances.
  • The Courts have, for example, held that the following non-electronic forms amount to valid signatures:Electronic equivalents of these non-electronic forms of signature are likely to be recognised by a court as legally valid. There is no reason in principle to think otherwise.

signing with an ‘X;
signing with initials only;
using a stamp of a handwritten signature;
printing of a name;
signing with a mark, even where the party executing the mark can write; and
a description of the signatory if sufficiently unambiguous, such as “Your loving mother” or “Servant to Mr Sperling”

  • The courts have, for example, held that the following electronic forms amount to valid signatures in the case of statutory obligations to provide a signature where the statute is silent as to whether an electronic signature is acceptable:With specific regard to deeds and the witnessing requirements thereof, a deed must be signed in the physical presence of a witness who attests the signature. This is the case even where both the person executing the deed and the witness are executing / attesting the document using an electronic signature.
  • a name typed at the bottom of an email;
  • clicking an “I accept” tick box on a website; and
  • the header of a SWIFT message.

Firms wishing to adopt electronic signatures should take legal advice if appropriate. The points made in this article are believed to be applicable in Scotland and Northern Ireland too.

What does this mean?
While there are some complex and/or statutory documents where a wet signature or an advanced or qualified digital signature is required, much of the documentation around the advice process would qualify as ‘simple contracts’ able to be electronically signed using a simple method.

So, an electronic signature is legally acceptable for the purposes of a client signing a client service / fee agreement as this would be considered a simple contract. Firms requiring client authority for an advisory rebalance could accept the client’s email response as being sufficient (provided the client isn’t refusing the rebalance of course!).

All that is needed is for firms to step back and review their documentation and to move away from wet signatures unless explicitly required by law.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

There is little doubt that electronic signatures are becoming more widely used and the current stay at home rules are likely to act as a catalyst to speed the process.

Firms can and should review their advice processes, remove unnecessary signature requirements and consider use of electronic signatures where a signature is required. Firms should also check with relevant providers and platforms what their intentions are in relation to the need for wet signatures, both generally and under the current health emergency.

Some contracts might still require a wet signature, a qualified signature or for a signature to be witnessed but we believe that most of the documents used in the advice process can legally be signed using simple electronic signatures. If in doubt, seek legal advice.

Action Required By You

  • Review the firm’s processes and reduce or remove the need for wet signatures;
  • Consider how to incorporate the use of electronic signatures in place of wet signatures;
  • Check with providers and platforms what their requirements are and push for a move to removing wet signatures where possible;
  • Contact your usual ATEB Consultant for further assistance with a review of advice processes or contact ATEB here.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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