Electronic Signatures and State Laws

FINRA’s new rule on electronic signatures, or e-signatures, highlights the how different systems – like states versus federal law – treat e-signatures. An e-signature, under Federal law, is a sound, symbol or process attached to a contract or other record with the intent by the attacher to sign or accept the record.  Documents like contracts, liability waivers, sales invoices, permission slips, lease agreements and letters are all legally binding when signed by e-signature.  They are increasingly being used as they allow for faster and more secure document signing.  Under the Electronic Signatures in Global and National Commerce Act (ESIGN), e-signatures become legal in every state where federal law applies.  In situations not involving federal law (think, contracts and leases), most states have adopted a uniform law on electronic transactions.
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It’s worth noting that digital signatures and electronic signatures are different terms. According to document processing giant Adobe, an (e-signature) refers “to any electronic process that indicates acceptance of an agreement or record…. Digital signature uses a certificate-based digital ID to authenticate a signer’s identity.” Federal law and state law differ a little in how they work.
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Enacted in 2000 the ESIGN Act gives e-signatures the same force and effect as handwritten ones in federal law.  That Act also provides that where any federal law requires a signature, an e-signature will be acceptable. How then did FINRA only come around to accepting e-signatures in July of 2018 (nearly 20 years after the ESIGN Act was enacted)? Recall that FINRA is not a federal body.  Instead, it is authorized by Congress to regulate the industry as a non-profit, independent agency.  FINRA, like most of the investment community, was hesitant to take on e-signatures. In 2014, FINRA found a that a registered investment advisor forged three e-signatures. In that case,  In the Matter of Grisel Saez, Respondent (AWC 2012034811001, August 13, 2014), FINRA found that by forging the electronic signatures, the respondent had caused the books and records of her firm to be in violation of FINRA Rules 4511 and 2010.
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Under the ESIGN Act, a signature will qualify so long as it evidences intent to sign, through clicking buttons on the screen. Users must also show consent to conduct business electronically and an opt-out clause (both given through clear instructions).
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States, on the other hand, have adopted a version of the Uniform Electronic Transactions Act (UETA). Enacted at approximately the same time as the ESIGN Act, the UETA has been adopted by 47 states and many territories (including Washington, D.C.). The three hold outs are Illinois, New York and Washington. Instead, they have their own laws on e-signatures. Similar to the ESIGN, UETA provides that a record will be enforced whether in paper or electronic form and that where a signature is required, an e-signature will be acceptable.
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Illinois differs from the UETA by favoring secure electronic signatures over others. A signature under that system is secure when it is created in a manner that can be considered commercially reasonable and can be verified.  
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New York’s version of UETA is the Electronic Signatures and Records Act (ESRA), which importantly for financial advisors, does not permit e-signatures on documents disposing of property upon death or incompetence or appointing a fiduciary. It may be good practice to determine if powers of attorney for financial matters used by many financial advisors as good record keeping, is permissibly signed by an investor or by the investor’s designee if either of those two individuals resides in the state of New York.
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Washington state’s version of the UETA is the Electronic Authentication Act. That later Act includes specifics on e-signatures involving the trustworthiness of those who administer the security systems involved in using e-signatures.
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Across the border, Canadian law on e-signatures defines an e-signature slightly differently than ESIGN or UETA.  That law holds that one or more letters, characters or symbols incorporated into a digital form and associated with an electronic document will suffice as an e-signature.