Embracing the use of electronic signatures can streamline your processes, reduce face-to-face interaction and further shift your business towards a paperless environment.
The COVID-19 pandemic has highlighted the advantages of working digitally and businesses are increasingly servicing clients remotely with the aid of technology. Virtual meetings have replaced boardroom tables and communication is confirmed via email. At the heart of this digital way of doing business lies the validity and impact of electronic signatures.
Electronic signatures serve the same purpose as traditional or ‘wet’ signatures, which are handwritten signatures on a physical document. Signatures provide evidence of the identity of the signatory. They also show the signatory intended to sign the document, and accepted and approved the information in the document.
They may also be more reliable than wet signatures if used correctly, as they form an audit trail that can help prove authenticity based on the data attached to them.
Types of electronic signatures
Electronic signatures – or e-signatures – include any type of electronic process that constitutes acceptance of a record or agreement. There are different types of electronic signatures, including standard electronic signatures, advanced electronic signatures and digital signatures.
A standard electronic signature suffices where the type of signature to be used is not specified. It can also be used for transactions for which the law has not specifically forbidden the use of electronic signatures. It suffices where it identifies the sender of an email and indicates the sender’s approval of the information communicated. Furthermore, it can be used when it is reliable and appropriate for the purpose of the communication, taking into account the circumstances when the signature was used.
An advanced electronic signature is an approved or accredited electronic signature. It should be used when a signature is required in terms of the law, for suretyship agreements and when signing as a commissioner of oaths.
A digital signature is used to verify documents and is also associated with contracts. Digital signatures require signatories to authenticate their identity based on unique features such as fingerprints.
How to use electronic signatures
You may prefer to send and receive documents with an electronic signature, as opposed to accepting an image with very little validation that it is indeed a client’s signature or was sent with a client’s knowledge and permission. There are various electronic signature software options available, ranging from the Adobe ‘Fill & Sign’ app to encrypted software you can install on your system.
It is important to follow the correct process for electronic signatures. Documents that require a signature must be sent to clients securely and specifically. Keep in mind that some software allows for documents to be sent only to the client email address and cell phone number on record.
When using digital signature software that relies on One-Time-Pins, be sure to send your clients a copy of the signed documents, as not all software automatically provides clients with copies.
Benefits of electronic signatures
Adopting electronic signatures in your processes means clients can complete the signing process online without having to print or scan documents. Most electronic signature functionalities use an encrypted audit trail that cannot be edited. This means individual transactions can be verified.
Software-based electronic signatures are secure and can be even more reliable than ‘real’ signatures, which can be forged or corrupted. Electronic signatures will appeal to clients, as they can sign from anywhere at any time. In turn, this will speed up the transaction process.
Electronic signatures do not need to completely replace wet signatures, as there will always be clients who prefer to sign documents the traditional way. Some clients may even doubt the validity of a digital signature. Other clients may not have the facilities to accommodate electronic signatures.
Advice process and electronic signatures
Using electronic signatures can also streamline the advice process. When giving advice, it is important that you can show you have made all the necessary disclosures and conducted a financial needs analysis in terms of Section 8 of the General Code of Conduct. Section 9 states this information must be confirmed in writing.
Based on Ombud determinations, you must also be able to show that you provided a record of the advice to clients in writing. So, although there is no direct requirement for clients to sign a record of advice, advisors usually ask clients to sign this document. This can prove the client was made aware of the advice process and any other information that must be highlighted.
You can use electronic communications to record the process, and this will serve the same purpose as traditionally signed documents. If you normally get a client to sign in multiple places on your document or record in a face-to-face situation then, as a digital equivalent, summarise the key points the client should note and agree to. If you keep a soft copy of the e-mail, it is not necessary to keep a printed copy of the communication.
Risk management
When implementing electronic communication, it is essential to implement risk mitigation strategies that confirm that communication is indeed sent from a client. A recent case, Global & Local Investments Advisors (Pty) Ltd v Nickolaus Ludick Fouché, highlights the pitfalls of not doing so.
In this case, the High Court found the financial services provider (FSP) had breached a mandate to act on the client’s behalf with regard to an investment. The mandate specified that all instructions had to be faxed or emailed with the client’s signature. The client’s email was hacked, and three emails were sent to the FSP with instructions to transfer specified amounts from the investment to third party accounts. Two of the email messages closed with “Regards, Nick” and “Thanks, Nick”. As a result, the FSP paid a total of R804 000 to the cybercriminal posing as the client in three tranches.
After losing the case, the FSP lodged an appeal with the Supreme Court of Appeal. After considering the meaning of ‘signature’, this court found the instruction did not include a signature, either manuscript or electronic. The emails were fraudulent and not composed or sent by the person from whom they were alleged to originate. The instruction was therefore without authentication and verification. The appeal was dismissed with costs and the FSP remained liable.
Operating safely
Electronic signature software comes at a cost. If you opt for a basic solution, check that it is secure enough for your needs. Some basic solutions that use tick boxes, scanned images or even typed names might not have encryption software. It is advisable to use secure electronic signatures for payment instructions, while a less secure process may suffice for the initial advice process.
It is also advisable to back-up emails and electronic records. If you intend to rely on the contents of emails, you will need to retain such proof and demonstrate that users intended the data in their emails as confirmation and acceptance.
As long as you comply with the legislative record-keeping requirements and can prove the authenticity of the information conveyed, embracing electronic signatures can positively impact your business.
Masthead offers Risk Management Plan webinars, which can help you understand the importance of Risk Management in your business and help you identify the possible risks in your business before they happen. Click here to find out more.