A new law signed in the US is about to make electronic signatures as legally binding as their ink counterparts. Stephen Langsford discusses the repercussions of this historic law for the financial services sector.
US President Bill Clinton recently hailed a new era in Internet commerce, signing an act into US law with a number-encoded smart card on the same hallowed ground America’s founding fathers signed the Declaration of Independence.
Significantly, he also pre-empted possible legal issues by putting pen to paper.
Clinton trumpeted his new Electronic Signatures in Global and National Commerce Act as providing fresh momentum to economic expansion fuelled by Internet growth. The Act will take effect from October next year.
Clinton said the act could potentially save firms billions of dollars by sending and retaining monthly statements and other records in electronic form. Given the hype surrounding the paperless office and the human propensity to send and print out hard copy documents for validity, only time will give credence to this claim.
The latest legislation brings the US in line with legislation already introduced in Australia and dozens of other countries including Argentina, South Korea, Germany, Russia and most recently, Ireland. However, the move does herald the support of e-commerce by one of the world’s super-heavyweights, even if it is reactive.
“Under this landmark new legislation, online contracts will now have the save legal force as equivalent paper ones,” Clinton said. “Companies will have the legal certainty they need to invest and expand in electronic commerce. They will not only be able to purchase products and services online, but to contract to do so.”
“With the swipe of a smart card and the click of a mouse, (customers) will be able to finalise mortgages, sign insurance contracts or open brokerage accounts.”
But what are the ramifications for Australian financial services?
According to Gadens Lawyers national director of electronic commerce, Adrian McCullagh, while digital signatures and public key infrastructures date back as far as 1976, consequences of incorrect implementation in terms of procedures and policies could prove financially disastrous.
“If you put your name at the bottom of an email, under this (US) piece of legislation, it could be interpreted as being a signature, thereby committing yourself to a formal contract without realising that that has actually occurred,” McCullagh says.
“Financial advisers need to make sure that their name at the bottom at the email should clearly identify they are not signing that document as an indication of full acceptance until such time they say so.”
The recent E-Commerce Beyond 2000 report launched by parliamentary secretary to the Minister of Communication, Senator Ian Campbell, calculates the net impact of e-commerce on the Australian economy by 2007 will be equivalent to a 2.7 per cent increase in GDP.
However McCullagh says that while the e-signature bill brought the US into line with Australian legislative mechanisms, the US was 12 to 18 months ahead of Australia in cultural acceptance of the technologies.
“There are very few businesses in this country that are really dealing in a business to business environment using electronic signature mechanisms, whereas in the US, they are actually ahead of us,” McCullagh says.
E-commerce tips for advisers
Gadens Lawyers electronic commerce director Adrian McCullagh offers the following advice for financial advisers trying to negotiate the minefield of e-signature legislation:
Clearly establish what jurisdiction your company is working in – local, national or international.
Understand the terms and conditions under which your company is going to contract.
Comprehend the laws surrounding the jurisdiction that can affect contract terms and conditions.
For large valued transactions, seek professional legal assistance.
<I>Stephen Langsford is managing director of Method + Madness.
