Electronic signatures – what is the best practice?

The Industry Working Group on Electronic Execution of Documents has published an interim report on the use of e-signatures.  The report follows the Law Commission report in 2019 that e-signatures were valid for the "vast majority of business transactions and legal processes" but that uncertainties as to their use hindered uptake.

In order to facilitate the widespread adoption of e-signatures, the report identifies five principles of e-signature best practice:

• Agree as early as possible that a document is to be executed electronically and the procedure for doing so.
• Use a signing platform that provides a minimum set of security/safety/functionality with a strong audit trail that demonstrates intention to sign by the signatories.
• Consider whether additional evidence to record the fact that the signatory is approving the document is necessary and/or appropriate.
• Where possible, provide multiple options to vulnerable parties or counterparties so that the method of signature suits their needs
• Authentication should be easier for those with secure digital identifies, but this is should not be essential.

The report also recommends future analysis and reform, including:

1. Creation of a cross-border database of permissible regulatory and execution modes should be established, to be maintained by government or non-profit offering subscription access.
2. Government should take steps to adopt using e-signatures in its transactions with third parties, and that official documents should be capable of being executed electronically (e.g. Lasting Powers of Attorney).

The report comes at a time when there is a growing need for and discussion about electronically executing documents.  Two reasons come to mind:

• The Covid-19 pandemic has called into question whether execution of wills can be witnessed remotely (they couldn't pre-pandemic; are permitted now on a temporary basis; the report calls for this to be extended permanently) and business practices for executing documents in an increasingly virtual (and hybrid) world.  
• Also, there are new forms of technology that require the efficient electronic execution of agreements.  The Law Commission recently reported that the law accommodated Smart Contracts (those written wholly or partly in computer code; we wrote about that report here).  Smart Contracts often require electronic signature (for example, to most efficiently record the agreement or to allow automation of the contract) and so greater certainty over how they are executed also helps increase take-up of Smart Contracts.

Ultimately what is right will depend on the circumstances.  Parties will have to consider for their transaction the most appropriate form of execution.  This is important.  The type of execution may be required by regulators or law.  Also, how a document is executed affects the burden of proof if the integrity of a document is ever challenged.  And, as with any document's execution, parties will need to hold on to the relevant documents (and data) should the contract ever be challenged.

This article was written by Tom Whittaker.

The benefits of electronic execution of documents include speed, clarity, simplicity and security. Appropriate electronic signatures are a safe and effective way of entering into legally binding transactions of all kinds.

https://www.gov.uk/government/news/new-report-sets-out-best-practice-for-using-e-signatures