eSigning has proliferated all over the world, and nearly all regulatory authorities have approved it. As such, many organizations and individuals nowadays sign documents electronically. The banking industry is no exception and has widely embraced the use of electronic signatures, particularly with the aim of ensuring financial compliance.
However, some banks and financial institutions struggle to get the answers they need during the initial stages of eSignature research. Are electronic signatures legal in every state in the U.S.? Is their authenticity guaranteed? Do eSignatures help you comply with financial regulations? The sooner you master the basics, the sooner you can find and start using your electronic signature software.
What is Financial Compliance?
Compliance in finance might entail, for instance, complying with the rules outlined by the Bank Secrecy Act, popularly referred to as the Anti-Money Laundering (AML) law. Or maybe you need to observe the Fair and Accurate Credit Transaction Act (FACTA) in line with the identity theft prevention guidelines.
Following the 2008 financial crisis, the government initiated these regulations to reinforce the stability and integrity of the U.S financial system.
Although this is commendable, it makes for a costly and complicated compliance landscape for banks and financial services organizations. Failure to abide by these laws means your organization could face legal issues, fines, penalties, and a damaged brand reputation.
Well, what should banks know before investing in electronic signature solutions? And most importantly, how do eSignatures help in meeting financial compliance?
1. eSignatures Have the Same Legal Weight as Wet Ink Signatures
Federal law recognizes eSignatures as a legitimate form of signature. The Electronic Signature in Global and National Commerce (ESIGN Act) in the U.S and the Electronic Identification and Autnethication and Trust Services (eIDAS Regulation) in the E.U. prevent the denial of validity, legal effect, or enforceability of an eSigned document just because it in an e-format.
While federal law doesn’t suffice, most U.S states have embraced the Uniform Electronic Transactions Act (UETA). Today, all the U.S. states allow the use of electronic signatures. Thus, eSignatures are legal in the American court of law and can be used to sign financial documents, provided the signing process is carried out as per the guidelines.
2. Electronic Signatures and Digital Signatures Do Not Refer to the Same Things
While the phrases digital signature and electronic signature are used interchangeably, they don’t mean the same thing. An eSignature is a digital format of a wet-ink signature that banks and financial institutions may use to show their desire to accept and approve the content of a contract.
Quite the reverse, a digital signature is a form of eSignature that employs algorithms to create a unique fingerprint (at times referred to as a “hash”) for every document. The hash comes in handy when identifying the person who signed a document.
One thing to keep in mind is that although digital and electronic signatures may be used to legally sign contracts, banks and financial institutions should first understand the local and state laws that apply to their situation before deciding between the two methods. This will without doubt go a long way in preventing signature and compliance-related issues.
3. eSigning Ensures the Integrity of Documents
eSignatures are a perfect solution for financial institutions and banks that wish to meet financial compliance. How? eSign encryption technology guarantees the signed document’s origin, indisputability, and integrity. They save your bank issues associated with paper documents – lawsuits and fines. Actually, as the eSignature provides the identity of the signatory and the authenticity of the document, it is more difficult to invalidate an agreement entered electronically.
Thus, to make sure your bank complies with the set legal obligations by the federal government, electronic signatures stand out as a great option.
4. eSigning Helps Prevent Customers Data Breaches
Due to the sensitive nature of customer information and data entrusted to banks, much of financial compliance involves keeping customer data secure and private. Therefore, how your bank processes and stores sensitive information requires special handling.
An electronic signature solution is considered more secure than the conventional way of signing documents. Unlike a handwritten signature, eSign can’t be manipulated or tampered with by an unauthorized party. Paper-based documents are also more prone to vandals, damage, and misplacement – a risk that most financial institutions and clients no longer want.
Better yet, electronic signatures are accompanied by a compressive audit trail made up of emails, time stamps, copies of documents, signer’s location, I.P., and location, making them effortless to verify.
5. eSignatures Reduce Errors In the Signing Process
Any kind of bank contract must have a signature. Signatures make a contract complete and enforceable in a court of law. However, unfortunately, human errors can easily disrupt the process, add unnecessary back-and-forths, and results in delays.
Signing errors usually occur when customers omit critical information. For example, they forget to sign, skip a section, or make other common mistakes. Other times, they may fail to write their full name, telephone number, and correct address, making the whole document unacceptable.
The exciting thing is that electronic signatures can help prevent these errors. With an electronic signature solution, banks can set up appropriate fields, so customers can’t submit the document unless they have filled and signed all the necessary fields. This eliminates human error, so mistakes can be detected and corrected without the signer skipping a beat.
6. Allow Customers to Switch to Paper If Desired
While the finance world is moving more and more toward digital transactions, there may be instances when your customers want to use paper. Switching from a digital to a paper-based process is usually referred to as “dropping to paper”, and banks should avail this option to customers.
In some instances, if customers cannot switch to paper, the contract may lose its legal status. Again, banks need to appreciate the legal ramifications of esigning before taking this route.
7. eSigning Documents Is an Easy Process and Can Improve Efficiency
eSigning and integrating eSignature technology into your bank workflow and processes is easy. Most eSignature solutions nowadays are rolling out in-built integration capabilities.
So, bank employees and clients can sign electronically from within their favorite applications, such as Office 365, Zoho, and Google Drive. This, in turn, improves productivity and gives the employees extra time to concentrate on more critical tasks. According to Forbes, organizations attain 70-80% efficiency improvement after getting rid of manual processes and embracing digital technologies like Foxit eSign aka eSign Genie.
Factors to Consider When Looking for an eSignature Tool for Your Bank
Intuitiveness. The esign tool you choose should be user-friendly. In other words, pick a tool that‘s designed to offer a positive client experience all the time. Highlighted mandatory fields and reusable templates are a few helpful features that most electronic signature software offers as a stepping stone to that goal.
Mobile-friendly. With customers heavily relying on their tablets and smartphones for everyday transactions, consider an electronic signature tool that allows them to sign documents electronically from their mobile devices. This means they can open bank accounts and apply for loans and credit cards directly from their phones.
Integrations. Your bank is dependent on various apps for the management of daily operations. Thus, it would be best if you opted for an eSignature solution that integrates with your internal banking processes. For instance, choose a solution that integrates with apps such as Dropbox, Ms Word, Google Drive, and more, so you can pull contracts directly from multiple apps and append signatures effortlessly.
Security. Document security is of top priority for many financial institutions when choosing an electronic signature solution. The eSign tool you pick must act as a digital vault, so your signed documents and information will be safe. Couple that with an audit trail that monitors the entire signing process: from the signer‘s email address, location, and device I.P. to document timestamp and fingerprint.
Compliant with the relevant regulatory authorities. There are laws that all electronic signatures need to comply with, just like wet ink signatures. In the U.S., they should be compliant with the ESIGN Act and UETA. Also, based on the nature of the banking sector, you will have to explore other rules and regulations that pertain to eSignatures.
Electronic Signatures in Banks: A Winning Strategy
It is impossible to envisage the future of banking without eSignatures, and financial services organizations that don’t appreciate this technology are lagging behind. This time- and location independent-way of signing banking documents is the way to go. Thus, it is good that banks begin or continue to improve their signature processes and advance their digital transformation journey to ensure financial compliance.