Electronic signing on corporate transactions: What is current best practice?
Electronic signing has now replaced in-person signing as the norm for most lawyers and clients on corporate transactions. This article summarises the current guidance from a number of sources on conducting electronic signing procedures.
Handwritten signatures have never been the ideal solution, being susceptible as they are to forgery, duress, etc. Technology offers an alternative in the way of electronic signatures which come in many forms, some of which are capable of greatly reducing the risks inherent in the handwritten form.
In its 2019 report Electronic Execution of Documents, the Law Commission concluded that existing legislation and case law are "sufficiently flexible to accommodate electronic signatures". It confirmed that electronic signatures are valid for the vast majority of business transactions and legal processes and are capable of being used to validly execute a document, including a deed, provided that the person signing the document intends to authenticate the document and any execution formalities are satisfied.
The EU eIDAS Regulation (adopted into UK law) breaks down electronic signatures into three categories: simple, advanced and qualified. Simple electronic signatures are the broadest category, comprising anything which isn't an advanced or qualified signature – standard e-signing through a platform like DocuSign, AdobeSign or HelloSign falls into this category, as does a scanned signature. Advanced and qualified electronic signatures (QESs) require additional levels of security, with QESs being the most secure (see below under "Future Reform" for further detail on QESs).
A number of recent publications have sought to provide guidance and "best practice" guidelines for managing an electronic signing process.
Industry Working Group on Electronic Execution of Documents
The Industry Working Group on Electronic Execution of Documents was convened in order to analyse the current situation, set out simple best practice which can be followed immediately by legal professionals (in-house and private practice) and businesspeople and to make recommendations for future analysis and reform. It published its interim report on 1 February 2022.
The Working Group's five best practice principles are as follows:
- Agree as early as possible that a document is to be executed electronically and the procedure for doing so. See below under "Networking for Know-How updated checklist" for more detail on how to adopt best practice here.
- Use a signing platform that provides a minimum set of security, safety and functionality with a strong audit trail which demonstrates an intention to sign by the parties. As a minimum, such platform should allow signing parties to download / retain executed documents.
- Consider whether additional evidence is necessary and/or appropriate to record the fact that the signatory is approving the document.
- Where possible, provide multiple options to vulnerable clients or counterparties so they can adopt a method of signing that suits their needs.
- Authentication should be easier for those with secure digital identities (see below under "Future Reform" for further detail), but this should not be essential.
Networking for Know-How updated checklist
In the wake of the Working Group's interim report, Networking for Know-How, an association of corporate professional support lawyers published an updated version of its checklist for managing such a signing in March 2022. The checklist comprises template communications to be sent by a law firm either to all signing parties or just to its own client ahead of an electronic signing and provides a useful tool for law firms and clients alike to ensure all parties are prepared and clear on the signing process.
Included in the template communications is, by way of example, the following:
- clear details of the law firms involved, the e-signing platform to be used and the documents to be signed both on and off the platform;
- a schedule setting out the signatories' names and email addresses and noting who will sign which document;
- signing instructions (including notifying the signatories that by signing electronically they will be confirming and acknowledging that they are the person to whom the signing invitation is addressed and that they approve the documents they are being asked to sign);
- sample wording capturing how documents will be witnessed through the e-signing platform; and
- sample wording to clarify the arrangements for dating the documents.
Current best practice guidance for witnesses stipulates that they should be:
- over the age of 18;
- not related to, married to or in a civil partnership or co-habiting relationship with the person whose signature is being attested;
- not a party to any of the documents in question; and
- physically present to witness the act of signing (whether applied electronically or otherwise) – virtual witnessing is not valid.
In light of COVID-19 and social distancing measures placing limits on the availability of physical witnesses, the Law Society confirmed in a 2021 Q&A that, where necessary, a child, spouse or other family member may witness a person's signature (unless they are also a party). However, this should be avoided where possible as, should it later prove necessary to verify the circumstances surrounding the execution of the deed, the reliability of the evidence presented by a witness may be diminished if they are a minor or seen not to be independent of the signatory.
In addition to best practice principles, the Working Group made a number of recommendations in its interim report for future analysis and reform.
- One such recommendation was that digital identities – a virtual form of ID – should be made available as a matter of priority to all members of society who wish to have one, as is already the case in a number of European countries. The report suggests that this will facilitate the uptake of electronic signing and help to modernise the approach to execution of documents in general.
- The Working Group also supports the idea that "qualified electronic signatures" would be capable of replacing the need for physical witnesses and attestation of documents. A QES offers the highest level of trust through an ID verification process which must meet multiple EU technical standards and be backed by a digital certificate issued by a trust service provider that is on the EU Trusted List and certified by an EU member state. The Working Group noted that there was an argument to be made that a QES is likely to be more reliable than a signature witnessed in an unsupervised environment.
- It also recommends that the government ensures that as many "official" documents as possible which the public may have to execute can be executed electronically (examples include lasting powers of attorney and wills). The group considers that the government acting as an "early adopter" in this way will encourage the widest possible use of electronic signatures, ultimately saving costs and time.