Equity Capital Markets Blog

The Value of Implementing Electronic Signatures in Investment Firms

Electronic signatures have been around for some time, and even though their use can drastically streamline paperwork and save time, organizations in the investment industry have been surprisingly slow to adopt them. 

In general, electronic signatures can be considered a legally binding demonstration of a customer’s agreement with the contents of a document or form. An e-signature is a legal, auditable and secure way of receiving consent or approval and it on electronic documents or forms. Esignatures can replace a handwritten signature or “wet signature” in almost any context, and are enforceable in every province in Canada.

According to Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA), an electronic signature is “a signature that consists of one or more letters, characters, numbers or other symbols in digital form incorporated in, attached to or associated with an electronic document.”

You can read Katipult’s guide to ESignatures for investment firms in Canada in our previous article.

Are electronic signatures legally binding?

Electronic signatures have been legally binding for almost two decades in Canada, but many investment companies have been slow to adopt them due to compliance concerns and general change management hurdles. E-signatures have been proven as reliable and secure, and highly efficient with also streamlining paperwork, and simplifying many essential business processes.

The Investment Industry Regulatory Organization of Canada (IIROC) released its original guidance on electronic signatures in 2002, following comprehensive federal legislation regarding the use of electronic signatures in the form of the PIPEDA.

In March 2019, the Investment Industry Regulatory Organization of Canada (IIROC) published an updated version of its Guidance Note 19-0051 to outline the conditions under which e-signatures can be implemented as a legally binding component of investment dealers’ transactions with their customers when managing contracts and consent forms.

Generally, IIROC has taken the stance that as long as the association of the electronic signature with the person and the document is established and the intent to sign is demonstrated, an electronic signature will be valid. The IIROC notices include different areas of focus and serve as a guideline for firms rather than mandating a specific technology. For example, the technology behind the electronic signature workflow now must guarantee non-repudiation. Consent is also required from the investor prior to using an electronic signature. Also, e-signatures don’t have to look like a physical signature in order to be applicable and legally binding.

The benefits of electronic signatures

Achieving security and reliability

One of the most impactful benefits of utilizing e-signatures is reflected in how secure they are. On top of being unique and distinctive, electronic signatures have several layers of protection which ensure the validity of any document being signed. To confirm and authenticate their identity, investors may be asked to enter a PIN code created via a representative of the investment company. A log of the PIN entry is then made which later appears on the signature certificate. Additionally, e-signatures are fully auditable and any changes made to a document are recorded within the system. 

Ensuring regulatory compliance

By introducing electronic signatures, organizations in investment management can achieve compliance more easily than ever before. Unlike many other technological innovations that take time to implement, e-signatures can minimize the adverse effects of manual and paper-based business processes instantly. By reducing the effects of human error and deficiencies associated with manual signature tracking, e-signatures are a crucial factor in maintaining regulatory compliance. In Canada there are two different areas of guidance that must be adhered to, particularly for IIROC members:

  1. A) Legal Requirements - Provincial and National legislation including the Personal Information Protection and Electronic Documents Act (PIPEDA) and the Uniform Electronic Commerce Act (UECA).
  2. B) Industry Requirements - Guidance from the Investment Industry Regulatory Organization of Canada (IIROC).

You can follow the hyperlinks above to learn more about how best to adhere to regulatory requirements associated with e-signatures.

Increasing time-efficiency

Compared to more traditional, paper-based methods, electronic documents are more efficient in a few important ways. With paper, your documentation remains on premises at the office, whereas electronic documents are accessible virtually anytime and anywhere thanks to the practicality of cloud storage. E-signatures allow for documents to get signed off on instantly, as opposed to physical copies which need to be emailed or faxed, printed out, scanned etc. Electronic signatures are also faster than ‘wet signs’, as they can be obtained from anywhere using different devices such as tablets, phones or computers, allowing for greater flexibility on the go. The impact of implementing e-signatures accumulates over time, increasing the efficiency of the most essential business processes bit by bit to your company’s bottom line. Electronic signatures can also save you a lot of time by allowing you to search for specific contract details, words or phrases, and removing the bottlenecks caused by physical documents. To round things off, electronically signed documents are instantly present on all parties’ ends, simplifying the process of signing agreements remotely.

Streamlining paperwork

Digitalization has been evolving exponentially in the last decade, creating a technologically literate customer base which prioritizes an intuitive user experience and the ability to manage paperwork more easily above all else. With the help of electronic signatures, you can streamline the paperwork around business processes even if either party is on the move or located in a time zone different from you. Every bit of information is now stored digitally and can be updated in real-time. The advantages of streamlining paperwork through electronic signatures are numerous. Whether it’s increasing document accessibility and searchability, enhancing time and resource efficiency, or cutting costs by avoiding physical postage.

Faster turnaround times and lower operational costs

The convenience and practicality of applying electronic signatures means your organization can expect much faster turnaround times. For example, instead of having to send a document to one party and waiting for them to print, sign, scan, and send it back (and maybe even repeating the process if a second signer is involved), sign offs can happen in mere seconds. Faster turnaround times are especially critical in time-sensitive situations. E-signatures don’t bypass or skip any of the steps performed in association with traditional, manual ones – they make them more efficient by offering unprecedented flexibility and speed, which is beneficial for both you and your customer base. The most obvious consequence of implementing electronic signatures is reflected in the sheer amount of time you’re going to be saving on a day-to-day basis. On top of that, your organization can count on lowering operational costs by removing the need for physical storage and avoiding paper as much as possible.

The tamper-proof nature of electronic signatures

Numerous digital signature services offer features which can display what’s called “tamper evidence.” If anyone tries to change any part of the document (even something as trivial as deleting or capitalizing a letter), the system makes an auditable record of that change. Tamper-proof electronic signature solutions log every step of the process, including information such as time, geolocations, IP addresses of all the parties involved, the authentication tools used in that particular document etc. What this means is that a fully transparent audit trail can produce concrete evidence of each party’s signature. Fraud and impersonation are thus much more difficult to accomplish, making your documentation secure and the electronic signatures on it a reliable tool for daily use.

Reducing paper count to help the environment

Even though some documents and records need to be printed and kept in physical paper form, many organizations can benefit from cutting printing, shipping and storage costs. Due to the fact document copies and duplicates need to be created and handed out to more than one party more often than not, excess paper use is a huge environmental concern. 

Keeping employees safe with e-signatures

In the context of the COVID-19 pandemic, mitigating health risks presents a priority, and that will remain the case for some time to come. Digital technology has proven to be a crucial factor in overcoming the challenges posed by the ongoing contagion. Electronic signatures can ensure physical contact between people is reduced to a minimum, allowing your employees to stay safe while their work remains uninterrupted. During a time where working remotely has become the norm, e-signatures offer the flexibility, reliability, and efficiency needed to carry on with your operations successfully. This applies to every industry, but is especially important in investment management, as compliance and transparency must be achieved remotely.

Tips for using electronic signatures

Choose a service provider who understands the industry and how to help you maximize the value of electronic signatures

Managing documents and keeping track of electronic signatures in a compliant way can seem like a daunting and challenging task for investors, but it certainly doesn’t need to be. The ability to ensure security and reliability should be among your top priorities when considering the right partner. Katipult offers the industry expertise and a set of versatile, easy to use tools to assist investors in their effort to execute documents and signatures digitally. Relying on a proven workflow and familiar user experience, investors can utilize our tailored-made, guided processes to ensure the validity of their documents. Katipult is constantly working on mitigating the risks associated with electronic signatures and reducing the impact of human error to a minimum.

Keep track of on-premise and cloud copies

Even though cloud technology is the most efficient way to record and store your documents, keeping copies in your own on-premise system as a physical back-up is still good practice. Cloud storage is generally speaking among the most reliable technologies available, but unplanned events such as server failures or staff changes can introduce some risks. To avoid data loss, you need to do a bit of strategic planning and organize the documents you’d like to keep in a coherent, easily searchable manner. Given some contracts are valid for many years and are subject to various amendments, these amendments will need to be electronically associated with the original contract.

Conclusion

There are many objections brought forth by internal stakeholders when evaluating digital transformation – they overpromise and underdeliver, cost a lot to implement, and return value only in the long run. With respect to electronic signatures that is the exact opposite. Even though their use in the investment industry was sanctioned almost twenty years ago, they are still not fully embraced and their potential remains unfulfilled. Electronic signatures will drastically improve your organization’s resource and time efficiency, enabling you to overcome countless business challenges remotely during a time of uncertainty. Even when the COVID-19 crisis subsides, their value will remain high in a technologically evolving landscape which values flexibility, security and mobility.