Evolution of digital document execution in financial services
Financial services companies are at the forefront of recognising the benefits of digital document execution. Ensuring regulatory compliance and optimising efficiency means they require far more than just e-signature platforms though.
The Covid-19 pandemic put rocket fuel on the shift to electronic document execution. Since then, recognition of the benefits it brings, including greater efficiency, better security and reduced costs, have further accelerated adoption. For financial services companies, the process entails far more than just e-signatures, though, with a variety of complementary technologies enabling and aiding efficient, secure, compliant execution. Here we look at different types that safely facilitate the electronic execution of documents in financial services and legal and regulatory developments in this space.
Technology platforms
All banks have large-scale digital documentation programmes whereby they are moving all internal and customer documents, signing, approval, etc. to digital. The scale of this shift should not be underestimated, being potentially even larger than the dematerialisation of securities in the 1980s and 1990s, with customer/bank interactions becoming completely ‘dematerialised’.
The global digital signature market value reached US$ 2.1 Billion in 2021, and is forecast to register a Y-o-Y expansion rate worth 28.5% to reach a valuation of US$ 2.7 Billion in 2022. Overall, the market is poised to expand at a 20.6% value CAGR across the 2022-2032 forecast period according to Future Market Insights research. There are household e-signature names such as Docusign and Adobesign, HelloSign from Dropbox, and many other providers. Also document management software such as Signaturely, and contract automation software like Juro.
E-signature platforms have evolved to incorporate verification processes and timestamping of e-signatures. However, banks also require additional technologies that address enhanced ID and intent verification, KYC, and authorised signatory management. There is no one app that does everything to meet the legal and regulatory standards required in financial services so the trend developing is towards creating hubs that combine best-in-class technologies that can meet these needs. For example, solutions addressing AI-driven fraud and AML risk detection, or authorised signatory management that ensures counterparties’ signatories are authorised to sign transaction documents on their behalf.
Legislation
At the same time, governments are working to ensure laws, regulations and standards keep pace with this changing landscape. Following the publication of their interim report in February 2022, a new and final consultation by the Industry Working Group (IWG) on the Electronic Execution of Documents was recently announced. The IWG was established by the Ministry of Justice to provide best practice guidelines for the electronic execution of documents with a view to improving standards, reliability and security, and aims to facilitate and increase the electronic execution of documents.
The Interim Report analysed how best to promote the transition from the current legal and technological environment to a future state in which the electronic execution of documents is performed effectively, routinely and with high levels of confidence. The group recommended that the Government make electronic signing available for all official documents, including its own contracts with suppliers and government departments.
Regulation
UK eIDAS Regulations established a legal framework for the provision and effect of electronic signatures, electronic seals, electronic time stamps, electronic documents, electronic registered delivery services and certificate services for website authentication. Under eIDAS, the law currently provides for three levels of electronic signature: Simple or Standard, Advanced Electronic Signature (AES), and Qualified Electronic Signature (QES).
The IWG’s view is that these levels of signature provide a useful framework. However, it identified a number of potential obstacles behind low adoption rates of AES and QES types of e-signature. QES is the most secure type, but current legislation is complex and has detailed requirements such as verification by a ‘Qualified Trust Service Provider’ which can make the process complicated for the signatory and the receiver.
Other barriers identified include the lack of a standardised pan-European identification process meaning different e-signature solutions use different means of identification and the lack of uniformity across jurisdictions, with many including the US not having a QES equivalent.
Steps are already being taken to address these barriers. For example, the Digital Trade Deal announced between the UK and Singapore in December 2021 includes a commitment not only to digitise more trade administration documents, permit electronic signatures, electronic contracts and electronic invoicing processes, but also to work towards mutual recognition of electronic authentication and signatures.
Outlook
With widespread demand and government support for electronic document execution, we will likely see further development and promotion of digital identities and increasing international cooperation around recognition and standardisation of identity verification and intent. As the practice continues to grow, we can expect e-signature providers to continue developing their offerings to meet demand, with complementary technology platforms further aiding the specific needs of financial services organisations.