Ensuring Digital Signature Legality for Financial Services in United States

How to eSign a document: digital signature legality for Financial Services in United States

okay we set up a little bit of the history on the faa's decision to start accepting digital signatures and transactions um it originated in a joint order of the faa and the dot back in 2008 when they said that digital signatures are acceptable uh for federal purposes they're federally acceptable to utilize those uh the registry itself uh issued its own change bolton in 2016 saying we will start accepting these uh within about 30 days they issued some guidance and clarification as to what was going to be required and needed and since that time we've been using that perhaps one of the biggest issues uh was a lot of confusion over the distinctions between electronic and digital signatures because of the way the faa set up their own processes they were unable to ascertain whether or not the the documents were being submitted with electronic signatures or digital signatures and that sort of moves us to our next slide please uh next slide please hey bruce sorry to interrupt bruce we just had two quick questions that i wanted to run by you and scott um the first had to do with user accounts uh the question was uh how they'll work will they continue to use escrow agents uh will lawyers brokers owners lien holders etc have to get their own user account but again this is you know this is like not official but yes we we understand that the uh lawyers brokers you know anyone who's doing multiple transactions or assisting on multiple transactions will need their separate account so the folks at mcphee and taft the folks at aic will have to have their separate account vetted approved so that they can do get onto this system and help their clients close transactions and that's not [Music] and assist available our customers and becoming part of the ir getting on the ir and then we take over from there and then accomplishing their transactions so i don't know that there'll be any significant changes it's just that there's just going to be some additional steps to get business done okay and then the other quick question had to do with when you're dealing with uh money that needs to be wired and obviously then you're predicated around federal reserve bank business hours versus now 24 7 you know arrangement with the registry well i think that's a question that needs to be answered by the people in the finance industry as to whether or not they're going to make changes to be able to do 24 7 transactions from that aspect because i think that will be one limitation when there's financing involved we're going to be subject to their hours okay great thanks bruce if you want to jump backward okay one of the things i was trying to explain is that there's a lot of confusion surrounding the distinction between um digital signatures and electronic signatures and i think if you refer back to when i said that you know the faa is actually an agency within the dot if you think of electronic signatures being the bigger set and then digital signatures are actually a small subset within the context of electronic signatures and if you go to the next site please they're really two different things and electronic signatures are the type of things that you do and i think we've all done it at one point in time we've uh accepted uh click wrap software where we agree to the terms we just click a button and accept or we've perhaps done something where we've agreed to something using a signature that we generated with our microsoft office all of those things are binding signatures this goes back to the esign act back in 2000 which made electronic consent something that could occur and bind people to contracts it's just the digital signatures are a little bit different from electronic signatures it actually uh is a process where a significant amount of information is being captured in the pdf um there's all sorts of hidden algorithms and encryptions that are occurring that um give a lot of information sometimes it's printed out the the key information is printed out in a summary in terms of who signed in when they signed in what ip address they were using how long they looked at the document when they actually gave their consent or signed the document which is called the signing ceremony all of these things are tracked and they're hidden and incorporated into the uh digitally signed document the pdf that contains the digital signature another significant thing that's very important is the fact that once a document signed if there's any changes that are made to the document it becomes invalid so that for instance let's say we're dealing with an aircraft purchase agreement if the purchase price is a million dollars everyone signs it agrees to it someone changes the purchase price to two million dollars it's going to invalidate the document um kind of a key thing is that that when the fa started their processes one that requires that the document containing the digital signature be printed and then filed with the faa when that happens all of the protections that are in that document are lost at that point in time at the time it's printed you basically don't know other than if it looks like a digital signature and if it complies with some of the the requirements that the faa sent forth as to how these things are supposed to look the the legibility and the information that's supposed to be incorporated and that's on the next slide if we can move to that please all of these things um you know are required you can on its face see that from a printed copy but you can't actually tell whether or not it's actually a digitally signed copy at that point in time or whether someone used a product to electronically sign the document but the faa did provide some guidance and some things that they they asked people to do you know one of the key things is that um the signatures you know either have something that shows that it has the software provider seal watermark uh date and time of execution or have an authentication key or code identifying the software provider and this became an immediate issue in our industry at the time that that that rule came forth unless people actually read read that guidance that came out because if you put the date and time on the signature and you then ask your escrow agent to assign or fill in the blanks and date your documents as to the actual closing date when people you know want to close the aircraft they want to transfer liabilities for insurance reasons for tax reasons a number of things the faa came out with an opinion that it actually occurred the the date is actually the date that's on the digital signature so one of the industry's solutions was just to limit eliminate the date and time uh from the signature page and follow their other guidance that you have the key or the code identifying the software provider which was an optional thing and and when you do that they were acceptable by the faa if you ever did have to authenticate the information it was all going to be contained in the encrypted data that was in the original document not the printed document that was sitting in the fa office um scott i think you have some thoughts on how cares is going to impact the use of digital signatures right yeah so um you know as bruce bruce said like kind of the short summary of that is just that you know the faa is very clear that they require digital signatures not electronic signatures um it'd be interesting when ed provides his you know information on kind of the legality of electronic signatures in the united states whether or not that's really a realistic requirement anymore that they be digitally executed and whether it's really needed if we're going to be vetting accounts and setting up accounts for every owner but that's that's their position but you know the way their system works and the technology that they have currently there's no way for them to really tell if a document was digitally executed versus electronically executed so they put put together that memo which is you know public if you don't have it let us know we can send you a copy but of the requirements and what the signature should look like um the interesting thing is you know with this new cares program uh they will be you know they'll have the technology just like you do at your office to open up a document and the program will tell you if it's been modified or if it was digitally executed you know all those sorts of things so the faa will actually have the ability to do that on any pdfs that you email in or submit and so it will be interesting to see if we really will have to continue to require with these you know you know comply with these more stringent digital signature requirements and and really have to comply with them uh or if the system will allow and the faa will allow parties to submit the you know easier more widely accepted electronic signature format great scott and bruce thank you for going over that that was a lot to try to cover in a short period of time so we want to transition over to terry now and talk about what their group is a lending group you know how they handled this whole change over to digital signatures and some of the processes they've put in place to manage that process terry thanks lee yeah a lot of things that lenders need to of course consider is the risks involved in accepting digital signatures um but also then what uh bruce and scott have talked about as far as well what will the faa accept and which um application then would be appropriate for your bank certainly is a popular application that many people use pnc does use you know but we may use or may have the ability to use other programs in the future and your bank again would want to evaluate those types of things certainly one of the biggest things for banks is knowing well who holds the chattel paper and uh so that's what was important to pnc with is that they have an evolt and so that evolve then is what keeps the channel paper uh so that that is considered the original and every other copy then will have a watermark on it indicating that it is a copy so when determining what application to use you want to make sure that you understand how that channel paper is going to be held certainly another aspect is the fraud piece of it and you know you want to make sure that your signer is truly signing that document and they haven't say uh pass that on to an assistant or um the wife is signing instead of the husband or the husband instead of the wife and so what we do to make sure that we are having that person that we need sign a document we provide them with a six-digit access code and we must give that code to the signer verbally this certainly can be challenging at times especially dealing with the high net worth individuals that we work with in our industry uh but it's something that as long as you're setting those expectations up front and you know the assistants uh or cfos know that you know we need to be talking with these individuals that we can you know we haven't really had any problems as far as providing the codes and um and getting signatures and and again making sure that we're not having somebody else sign who shouldn't be signing so you know it's every lender just needs to go through their uh vetting process considering those risks and uh making sure that they understand what it is that um these software applications provide them and that's all i've got on that slide okay thanks terry ed do you want to uh jump in now and get onto the legal side of handling all these documents sure uh well good good morning and good afternoon to everyone uh i'm going to talk about some of the legal issues associated with digital signatures and the the statutory framework that we have for digital signatures is that um there is a state a group of state laws called the uniform electronic transactions act or ueta this is a uniform act the way uniform acts come about is that you get some you know legal scholars make a determination that we need to have some sort of law that applies across the various states on a particular topic so they go out they draft it they propose it and put it out there for all the states to consider whether they want to make that part of their law this is the the uniform commercial code is a very good example of this that we're all familiar with the ueta has been adopted in all but three states those are new york illinois and washington so you've got a very uniform set of rules that govern how digital and electronic signatures will be treated in addition to that there's a federal law called the electronic signatures and global national commerce act which is uh typically called e-sign and it covers much of the same ground as uweda does and there's a lot of interplay between the two and whether one is uh whether the federal rules preempt the state rules the net effect without getting into the weeds on it is that the rules for the acceptance and validity of electronic signatures are substantially the same in in all 50 states and govern the same way in in a federal format as well so if we flip to the next slide you know some of the real world questions that we'll try to address uh here and in the in the uh questions at the end are uh you know if you have digital signatures is it necessary to get back up original signatures some of the reluctance of lenders to provide digital releases what about documents that aren't filed at the faa we know what the faa will and won't accept other documents that are ancillary to the filings you know for example a delivery and acceptance certificate the purchase agreement um how are they addressed how do we address notary issues and and then i think what is a real issue is um the use of standalone signature pages and packets that we've all gotten very accustomed to in a lot of transactions ed we have one quick question if i could sure the question is are electronic notary services like notarized.com accepted federally or in all states you know i don't know the answer to that it really the that issue is not really addressed in either of the uniform statutes i think that's going to be you know a topic for interpretation by the courts but i suspect that they will find a way to legitimize the use of electronic notaries because it is becoming um more of a uh an accepted practice and a necessity uh given the world that we're living in right now thank you so turning the page over to uh legal opinions um this is an area of interest i think for banks that are requiring opinions on transactions on you know their their loan transactions usually it comes either from in-house counsel of the borrower or from outside counsel to the borrower and before digital signatures there was always this group called the tribar opinion committee and that that is a a group of uh various bar associations around the country that have all gotten together to kind of come up with a playbook and ground rules for what uh legal opinions should include can't include you know what are the rules for uh opinions what assumptions can lawyers make uh what assumptions are automatically in an opinion even if it's not stated uh the tribar opinion committee recently came out with a statement uh on the treatment of utah and e-sign and the bottom line is is they said that electronic signatures on deal documents are valid so for if you're doing an opinion based on an electronically signed document you can treat that signature as valid and docs signed with electronic signatures have legal effect so basically what they're saying is that from an opinion perspective an e-signed document is every bit as valid as a manually signed document um e-sign contracts the tribar opinion says that if you're looking at one um and you see that the document is signed electronically the lawyer can make the assumption that there's an implied agreement by the parties that that electronic signatures on the documents are valid so you don't have to check to see if there's been any uh specific opting in to an electronic signature regimen um going to the next page um making you know one of the the opinions that lawyers are typically asked to make is is the document dually executed and uh that can you know eat you know then for the purposes of this eSignatures would include emails pdfs faxes and what we're talking about more today adobe and other um you know third-party provider uh basis for eSignatures so um the dually executed opinion can be based on the assumption that it again it's based on the party's conduct so if the parties have electronically signed lawyers can assume that that's what they intended to do um the contract doesn't need to explicitly state that it authorizes these signatures although that could be a better practice for um for banks and other parties for transactions to include in their contract language going forward um but the opinion giver really should review the document and and as should the uh the parties to the document to make sure that the contract doesn't explicitly exclude or prohibit these signatures so you can unless you see something to the contrary you can assume that any knee signed contract is dually executed um the general rule is that an opinion may be based on the assumption that the signatures are valid and that assumption is you know the same for a manually signed or an e-signed document so again from a legal opinion perspective it doesn't make any difference you know the assumptions are the same for manual signed documents or for electronically signed documents uh moving to the next page uh enforcement uh i've broken this down into internal issues which the internal issues are kind of the things that we all deal with uh the the normative behavior that we engage in and we've all got gotten so accustomed to in closing transactions through the law firms and title companies uh in oklahoma city and then the external issues which are you know how would a court look at it how would a third party look at what we've just done we've already talked about what the faa will accept you know the bottom line is that digital signatures are okay so uh the registry is going to accept them there's still some open questions about digital versus electronic and a lot of things that are going to be um going to shake out during the cares act implementation but for now we know that you know digital signatures are okay are our normative behavior has in a lot of transactions what we see is signature packets being sent out um and rather than sending out the entire document to be executed the lender or lender's counsel will put together a packet of all the signature pages it makes it easier for the signer to just go through a packet sign every page they don't have to flip through 30 pages of a loan document to get to where they need to be to sign makes things a lot easier um so you know and then what we normally do is we take that signature page we have you know scott's firm or bruce's firm attach it to the body of the document and that's what gets submitted to the faa um we authorize them during the closing to date it uh there may be some blanks in the document at that point that need to be completed or or you know serial numbers that need to be corrected we've all gotten used to doing that um and and it makes it easier to do this so um that's the way it is from from a best practices perspective i think it's a good idea to address the the uh acceptance and validity of these signatures in the documents we should have some methodology for validating the completion of the documents in oklahoma city and some sort of methodology for the exchange of final documents post-closing um you know is there an opportunity to comment or object when do we know that the documents that are filed have actually been the ones that have been agreed to and a lot of this this behavior takes place during the closing call but it's all verbal at that point and you know do we need to formalize that flipping to the next page on enforcement from an external perspective you know there's not a lot of law out there on how courts interpret e-sign documents and one area that i find to be potentially very troubling is this whole concept of uh signature pages that are being affixed to the body of a document how is the court gonna view that are they gonna just accept the fact that everybody agreed that that's what they were going to do how are they going to view dating and completion and correction documents um you know we've left it you know left it open for courts to interpret uh and there's some potential pitfalls there question of forgeries um you know i i i can't figure out how somebody could forge an e-document but i'm sure there are hackers out there that are far more technically proficient than i that will figure out a way to do it uh terry mentioned that they send a six-digit verification code you know i think that's a great idea uh we all see that um in in other aspects of our life you order something online before it gets accepted you get a you know a text message that says hey is this really you um you know that that's something that we should all think about to cut down on the possibility of forgeries or you know as terry mentioned before um the administrative assistant is signing for the executive or the wife or husband is signing for the other person uh so something we should think about uh international deals you know we all know what the law is in the u.s these signatures are pretty readily accepted on an international deal i don't know that we can just assume that all the more reason to put some language in your documents um to to address that situation uh going to the next page um in in doing some research on this one of my colleagues at the firm uh sent me a copy of the mergers and acquisitions committee of the american bar association has actually come up with a set of rules and guidelines for acceptance of digital signatures and because we're running a little short on time i won't go through what those are but i would propose that maybe the aviation community um you know and particularly this uh branch of the aviation community being the finance side of things ought to explore you know coming up with a set of rules that you could basically opt into with your document that says you know we are acknowledging that these rules are governing the uh execution and filing and enforcement of documents going forward so we take some of that potential for interpretation uh that we may not like out of the process we'll flip to the next page and i think you know we want to uh just kind of open this up in terms of what people think about um you know changes and changes to normative behavior and you know situations where one party accepts digital signatures and the other one doesn't so great thanks ed as you said we are sort of coming up to the end of our time um so i want to thank uh terry ed scott and bruce uh there was a lot to cover certainly if anybody has any questions please feel free to email them in to any of the participants or even to uh karen or tracy at nafta and we can certainly you know get back to them so tracy i'll turn it back over to you well thank you that was wonderful thank you everybody for attending and participating there's a lot of information here so um as lee said if you have any questions feel free to reach out to me you can reach out to me but i don't really probably know some of these panelists would be a better option for reaching out to so thank you for participating don't forget to register for uh the upcoming welcome reception in vegas and our annual conference next year in napa valley and both of the information about both of those events is on our website thank you