In August 2022, FINRA sent out regulatory notice warning firms about their obligation “to supervise for digital signature forgery and falsification” and gave multiple examples of how and why it was happening.
The notice also said, “These types of incidents underscore the need for member firms that allow digital signatures to have adequate controls to detect possible instances of signature forgery or falsification.”
Digital signatures have many benefits, but as FINRA’s notice shows, they are not immune to forgery or falsification. The best way to protect yourself from possible fraud or even identity theft due to forged signatures is knowledge.
There are different kinds of signatures, and you should know what they all mean before signing any legal agreement. These different signature types include electronic, wet, and clickwrap.
The nature of the transaction determines the type of signature, so it’s important to understand the differences.
Despite technological advances, the “wet signature,” or using a tool such as a ballpoint pen to create a signature on a paper document physically, remains a preferred method of signing contracts.
Wet signatures are also difficult to collect and can delay business communications, leading to lost or stolen documents or sensitive information leaking out. In addition, wet signatures are easy to copy or forge.
The wet signature process can take days or weeks to complete. Aside from the time required for processing the documents, you’ll also have to shell out for ink, postage, and lost productivity. Not to mention that you’ll have to collect signatures on multiple pages, which will also take up valuable business time.
Wet signatures are less secure than e-signatures, and you’ll need to use a handwriting expert and witnesses at the signing to establish whether the signature is genuine. These processes are expensive and time-consuming and can be less reliable because of the human factor.
While wet signatures still have their place in some circumstances, electronic signatures are increasingly becoming the preferred method for many businesses.
The clickwrap signature, also called a clickthrough signature or a shrink-wrap signature, is an electronic signature that provides the same tamper-proofing benefits as other signature types. Its signature includes information about the signer that cannot be changed without removing the signer’s signature. It is also convenient for web-based transactions that do not require a large amount of infrastructure.
The Official Comment SS 112 to the Uniform Computer Information Transactions Act (UCITA), a proposed framework for standardizing digital information, including software licensing agreements, provides examples of how clickwrap agreements can be constructed.
With the basic clickwrap signature method, the user must only log in and click the “OK” button.
Aside from the basic clickwrap signatures, there are advanced clickwrap signature methods. The advanced clickwrap signature method involves sending a PIN to the signer through SMS, and the signer must enter this PIN before signing the document.
The clickwrap signature is an important part of an electronic contract. It not only informs the user about the contract but also captures their affirmative assent to the terms of the contract. Only when both requirements are met will a contract be enforceable.
A notable case illustrating this point is Specht v. Netscape, wherein a hyperlink to a software download page failed to provide the proper notice, rendering the contract unenforceable.
While the clickwrap signature has several benefits, there is still no widely-accepted standard. The quality of identity verification and consent expression relies on the quality of the supplier’s processes. Additionally, data from a clickwrap may be worthless if there is a dispute. Furthermore, the lack of agreed standards makes it more difficult for a user to export the data.
There are many types of electronic signatures, and some are more suitable than others for specific purposes.
Electronic signatures are governed by laws and must meet certain legal requirements. Specifically, the federal E-Sign Act and state implementations of UCITA or the Uniform Electronic Transactions Act (UETA) define the types of electronic signatures that can be legally accepted. In Europe, eIDAS defines the legal requirements for electronic signatures.
A number of industries can benefit from using electronic signatures. For example, the legal industry can use e-signature technology to provide higher levels of security and audit trails. For example, using electronic signatures can save significant time and labor in class action communications. Likewise, the retail sector has many applications for e-signature technology.
While legal requirements differ by country, all eSignatures are considered legal when they adhere to a set of guidelines. In the United States, there are several laws and industry-specific regulations.
In 1997, the FDA introduced the 21 CFR Part 11 regulation that granted electronic signatures the legal force of a “wet-ink” signature. In 2000, the UETA was passed and validated the legality of eSignatures on a national level.
Another type of electronic signature is the digital signature. We have discussed in a previous article the differences between electronic signatures and digital signatures.
To summarize, digital signatures are more secure than ink-based or their simpler electronic counterparts due to their use of encryption standards to prevent modification of documents after signing is completed. They also comply with strict legal regulations.
A Custom E-signature Solution
All in all, the different kinds of signatures serve businesses and individuals in a number of different ways. They offer a way to add a personal touch to documents, speed up the signature process, and provide a way to sign documents without having to print them out.
No matter what your needs are, there is an electronic signature solution that will work for you. Our pick is Go Sign It.
With Go Sign It, easily share documents with signees by email or text. And since it integrates seamlessly with our other platforms, you can manage the whole process from start to finish – setting due dates, assigning tasks, and keeping track of it all in our secure data warehouse.
Contact us to schedule a free demo today!