Likewise, Canadian federal and provincial law (Bank Act [Canada] [BA], e.g. Electronic Commerce Act, 2000 [Ontario] and the equivalent legislation in other Canadian common law provinces), are generally permissive in relation to the use of e-signature so long as the e-signature technology used is reliable and meets the basic characteristics of an enforceable e-signature (i.e. (1) the electronic signature is reliable for the purpose of identifying the person; and (2) the association of the electronic signature with the relevant electronic document is reliable). The laws are technologically neutral, and market practice is to include explicit consent provisions in e-signed contracts (as previously mentioned), although such provisions are not specifically required. However, lenders should also be aware of exceptions to the general rule. Wet ink signatures should be required for certain documents, including promissory notes, personal guarantees, notarized mortgage documents, and security registered with the Bank of Canada.
Similarly, under English law, through a combination of legislation, case law, and common law principles, e-signature is broadly recognized as having the same legal effect as wet ink signature so long as the transacting parties intend to authenticate the document and have adhered to all formalities relating to execution (Electronic Communications Act 2000 [ECA 2000]). The law does not specify the technology required for enforceability and does not require express consent provisions; however, market practice is to include express consent provisions in e-signed contracts. Like in the U.S. and Canada, the generally permissive legal framework in England is subject to certain exceptions. For example, wet ink signatures should be obtained for guarantees and other documents created in the form of a deed requiring witnessing. English law does not recognize remote witnessing of deeds. A witness must be in the physical presence of the signer when a deed is executed, making e-signature of such deeds impractical. As in the U.S., not all English security registries accept e-signed collateral documents for filing. Lenders should either be assured in advance of the policies of a particular registry or, for ease of monitoring, adopt a blanket policy of requiring wet ink signatures for all collateral documents to be filed with security registries.
In order to create a predictable framework for e-signature use by transacting parties across borders in EU member countries, the Council of the European Union adopted an e-signature regulation (Regulation [EU] No. 010/2014 [eIDAS Regulation]) applicable to all EU members. Similar to local law in the U.S., Canada, and England, the EU regulation provides that among member countries, e-signature cannot be denied legal effect simply because it is in electronic form. However, unlike the law in the U.S., Canada, and England, in order for e-signature to have the same legal effect as wet ink signature, the e-signature must meet the heightened criteria of a “qualified electronic signature (QES).” The QES criteria focus on verifying the identify and authenticity of the signer and require, among other things, the use of a “qualified electronic signature creation device” such as a configured USB token or smart card when creating the e-signature, and e-signature certification by a “qualified trust service provider.” a pre-approved commercial or governmental authority. QES has been slow to gain acceptance among commercial parties outside of a few regulated industries due to the impracticalities of complying with the eIDAS requirements. Before implementing e-signature, lenders in EU member countries should consider whether their commercial clients are willing to comply with the QES requirements in order to deliver e-signed loan documents with the same legal effect as wet ink signature.
Outside the EU, there is little harmony across geographic regions or country borders with respect to e-signature requirements and laws. Like in the EU, many countries also require the use of heightened digital technology and/or certification by governmental authorities for e-signed loan agreements to have the same legal effect as wet ink signature. In certain Latin American countries, key credit and lending documents are expressly excluded from protection under e-signature statutes, while in some Middle Eastern countries, courts have been known to reject e-signed lending agreements despite legislation recognizing their enforceability. The lack of global uniformity is significant for commercial cross-border lending transactions where the jurisdiction of the documents’ governing law, as well as the jurisdiction of formation for each borrower and guarantor, must be taken into account in order to avoid potential challenges to enforceability by borrowers or guarantors under the applicable law of their own jurisdiction of formation, in addition to the jurisdiction of the documents’ governing law. For lenders engaged in cross-border lending activity, monitoring compliance with the laws of multiple jurisdictions can be unwieldy, time consuming, and expensive, creating new challenges and legal risks to be weighed against the benefits of using new technology to streamline processes, improve customer experience, and reduce internal costs.
Commercial banks seeking to implement e-signature solutions should evaluate the risks described above. We suggest creating an internal working group of stakeholders and risk stewards from across business products and functions to develop an integrated and iterative approach for using e-signature for each of the various types of documentation involved in a commercial lending transaction. As an additional step, we suggest piloting the proposed solution with a small team of bankers and their clients. In the course of the pilot and wider roll-out, the working group should continue to address new challenges and risks as they arise.