Financial Conduct Authority  

What the regulator expects on electronic signatures

What the regulator expects on electronic signatures

The financial regulator has set out its expectations for the use of electronic signatures as firms adapt to remote working and navigate restrictions posed by the coronavirus lockdown. 

In an update published today (April 20) the Financial Conduct Authority confirmed its rules do not explicitly require wet-ink signatures, meaning those signed by hand using a pen, on agreements and did not prevent advisers from using electronic signatures. 

The watchdog said the validity of an electronic signature was instead a "matter of law", with the FCA urging firms to consider the legal position themselves. 

The FCA pointed to its principles for businesses and warned firms should take appropriate steps to minimise the risks involved with using electronic signatures, especially those which may impact their responsibility to treat customers fairly with due care. 

The FCA said: "Firms should consider the client’s best interests rule and the fair, clear and not misleading rule to ensure that, when a client signs a document electronically, this does not make it more difficult for the client to understand what they are agreeing to." 

Simon Chapman, associate director at compliance firm Complyport, said the FCA had never specifically required client signatures on engagement terms with advisers, although some had taken a "belt and braces approach" of requiring them for their own benefit.

Mr Chapman said: "So we would expect firms to take a pragmatic approach to how they interpret their own procedures in this regard. 

"Of course, there are legal considerations around the use of electronic signatures and, indeed, around other associated areas such as explicit consent needed in the processing of certain data.

"We would therefore expect advisers to accommodate these in their actions, particularly where any explicit consent required cannot be inferred simply from a client’s actions."

Mr Chapman said the ultimate issue was one of ensuring advisers acted "legally and in the best interests of their clients".

The regulator recently confirmed it would accept electronic signatures for fund-related applications and on all applications from mutual societies.

The FCA also advised firms could use electronic signatures for all interactions with the regulator itself.

Mark Turner, managing director of compliance and regulatory consulting at Duff & Phelps, said the watchdog was "rightly seeking to do all it could" so businesses could continue operating in the current environment.

But Mr Turner said: "What they will not accept, however, is client outcomes suffering as a result.

"Where firms do move from wet-ink to electronic signatures, they should monitor data including conversion rates, cancellations and complaints.

"In the event this data may be pointing to changes in client behaviour, firms will need to investigate this and consider whether they need to amend their procedures accordingly."

Conor Murphy, chief executive of mortgage technology provider Smartr365, said for firms which choose to use electronic signatures it was "imperative" advisers could accurately identify the signee digitally before submitting any documents.