Over the past few months, I have received several calls regarding electronic signatures. Can we? Should we? Are there any compliance-related issues? Has the Securities and Exchange Commission addressed the issue? Is there a corresponding Advisers Act rule or guidance from the commission? This column will address these issues.
Does your firm currently permit electronic signatures or is it considering doing so for new client relationships? If so, there are certain rules and considerations to follow to ensure that your electronic signatures are legally binding agreements with your clients and are admissible in a court room or arbitration proceeding. In addition, an SEC-registered investment advisor (RIA) must adhere to certain requirements set forth by the SEC for electronic records.
There are two major laws to consider prior to implementing an electronic signature program. The first major piece of legislation is the Electronic Signatures in Global and National Commerce Act (ESIGN). ESIGN authorizes the use and acceptance of electronic signatures.
The second cornerstone of electronic signature law is the Uniform Electronic Transaction Act (UETA). UETA is the model or uniform state law counterpart to ESIGN. It hasn't been adopted by all states, so it is important to know the law regarding electronic signatures in the states in which your firm does business.
As a general rule, if ESIGN and UETA apply to your firm's electronic signature program, then the signatures cannot be denied legal effect solely because they are in electronic form. ESIGN defines an electronic signature as "an electronic sound, symbol or process attached to or logically associated with an electronic record, and executed or adopted by a person with the intent to sign the record." UETA has a similar definition, but again, each state has adopted a slightly different definition.
