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How Can Banks & Lenders Take Advantage of E-Signature Technology?
This blog post covers the legal status of e-signatures in financial services verticals within the U.S., U.K., and Australia, and how they can be used.
In the wake of temporary COVID-19 restrictions, many industries around the globe have shifted on an increasingly permanent basis towards remote work and remotely enabled work technologies. As a result, the laws governing what technologies different industries can employ in handling and verifying sensitive personal information have recently changed in many countries.
This blog post covers the current legal status of e-signatures in financial services verticals within the U.S., U.K., and Australia.
What Is an E-Signature?
E-signatures have existed since the 90s and became more common with the widespread adoption of internet technology in businesses. An e-signature replaces a physical or wet signature on a document, contract, or other legally binding agreement. Essentially, an e-signature signals intent to sign and agree to the disclosed terms electronically rather than on ink and paper.
E-signatures should not be confused with digital signatures, a cryptographic technology for creating a unique association between a signature and a specific document version. Digital signatures enhance the security of e-signatures and can often satisfy the proof requirements of legal guidelines for e-signatures in different countries and service sectors. Digital signatures use an encryption format called public key infrastructure to register e-signed documents with third-party registration authorities, preventing any single signatory party from altering the document after signing.
Benefits of Adopting E-Signatures
E-signatures provide several advantages over wet signatures in many industries. E-signatures:
- Save time spent exchanging hard copies of signed documents or arranging in-person signing meetings
- Enable fully remote services
- Allow signed documents to be stored and transmitted with end-to-end encryption, reducing the risk of exposure for sensitive information
- Create a comprehensive time-stamped record and audit trail of all signatures applied to a document
Are E-Signatures Legally Acceptable within the Financial Services Industry?
The legal status of e-signature use in financial services varies both by sector and location. As so many of our FileInvite customers are in the United States, the United Kingdom and Australia, we’ve elected to do a deep dive into these three geographies.
E-Signatures in Banking
- U.S.: The federal Electronic Signatures in Global and National Commerce Act (E-Sign Act) passed in 2000 established that e-signatures consisting of sounds, symbols, or processes associated with a contract or financial record can represent the legally binding and valid intention of a person to sign a financial document or record.
- U.K.: In 2016, the European Union passed a regulation for Electronic Identification and Trust Services (eIDAS). Although the U.K. is no longer an EU member state, eIDAS has remained the applicable statute for e-signatures use by banks in the U.K. eIDAS recognizes three kinds of e-signatures in banking operations – simple, advanced, and qualified. These categories are distinguished by different degrees of complexity in proofing requirements.
- Australia: Australia’s 1999 Electronic Transactions Act allows banks to accept e-signatures in place of wet signatures.
E-Signatures in Mortgage Lending
- U.S.: The E-Sign Act allows using e-signatures to be used in home mortgage signings.
- U.K.: eIDAS requires qualified e-signatures verified by a third-party qualified trust service provider to replace wet signatures on mortgage signings. Additionally, e-signed lending documents must have two-factor and be confirmed by unique access codes texted to signing parties.
- Australia: A 2020 amendment to Australia’s Corporations Act legalized using witnessed e-signatures in mortgages. A witnessed e-signature requires a third party to legally witness the application of an e-signature to a document and then apply their own.
E-Signatures in Commercial and SBA Lending
- U.S.: The E-Sign Act and Uniform Electronic Transactions Act (UETA) establish technological neutrality in the U.S. regarding using e-signatures in commercial and SBA loans. If all signatory parties have consented to use e-signature technology and met the legal requirements of the contract to be signed, U.S. law recognizes e-signed commercial loans.
- U.K.: The same eIDAS requirements for mortgage loans in the U.K. apply to commercial loans.
- Australia: Commercial lenders and loan recipients can sign commercial loans in Australia with witnessed e-signatures
E-Signatures in Financial Planning
- U.S.: The E-Sign Act applies to financial planning agreements.
- U.K.: eIDAS permits the use of e-signatures in financial planning agreements.
- Australia: Financial Counselling Australia (FCA) is a national non-profit organization that provides guidance for financial counsellors and planners. The FCA recommends that financial planners use a third-party authorization service for e-signatures operated by a company that physically stores data in Australia.
The Future of E-Signatures in Financial Services
Owing to the efficiency and security that e-signatures with digital certificates enable, e-signature technology will likely continue to gain wider legal use in many countries. For example, in the U.S., members of the Senate Committee on Commerce, Science, and Transportation have introduced the E-Sign Modernization Act that would allow financial services customers to consent to e-signature use through signed disclosures only.
Legally Binding E-Signature Technology with FileInvite
FileInvite’s secure file sharing and document portal platform enables easily applied single or multiple-party e-signatures on contracts, agreements, and applications. With SOC 2 Type compliance and 256-bit end-to-end encryption for all stored and transmitted data, as well as the required signing certificate, FileInvite streamlines financial services signings while enhancing overall security.