Brokerage firms nervous about e-signatures law

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by Maria Trombly

New York (IDG) -- The new federal law giving digital signatures the same legal weight as written ones went into effect on Sunday. But the Securities and Exchange Commission (SEC) already has guidelines in place for sending documents electronically, and the two sets of rules don't match.

That worries many financial services firms, and the discrepancies between the two sets of standards were a key topic of conversation at a conference that was held in New York Tuesday by the Securities Industry Association (SIA).

In general, according to legal experts who spoke at the conference, the SEC's guidelines aren't as strict as the digital signatures bill that was signed into law by President Clinton last spring (see "Clinton signs digital signatures bill", link below). For example, the SEC only requires that corporate documents such as prospectuses, annual reports and proxy solicitation materials be offered in a format that is "not unduly burdensome" to the intended recipients, said Robert Wittie, a partner at Washington-based law firm Kirkpatrick & Lockhart LLP.

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The SEC even lists Adobe Acrobat PDF files as allowable for electronic transmissions of documents, Wittie said. The Electronic Signatures in Global and National Commerce Act, on the other hand, requires that consumers and other recipients of documents being sent digitally must demonstrate that they actually can access the documents through steps such as sending an e-mail message consenting to receive materials in that form.

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"Some of us in the industry approach these requirements with a certain degree of nervousness," said Christopher Gilkerson, vice president and associate general counsel at San Francisco-based brokerage Charles Schwab & Co. "They raise the thorniest issues of interpretation."

For example, some attorneys at the conference argued that the e-Sign act, as the digital signatures bill is informally known, will only apply in certain cases, such as when contracts are signed and exchanged electronically. The bill won't necessarily cover all documents delivered electronically, they claimed.

An SEC official, who said he wasn't speaking officially for the agency, said brokerages should comply with both sets of rules until the SEC makes a final determination of how the discrepancies should be resolved. "In my opinion, when a brokerage firm is subject to both delivery and in-writing requirements, then it would judicious for it to comply with both," said Mark Borges, an attorney adviser at the SEC's Division of Corporate Finance.

The digital signatures legislation allows government agencies to waive the act's rules under certain circumstances, and the SEC is considering doing so, Borges added. But a final decision hasn't been made. "We just want to proceed cautiously because this is a new area for us," he said.

But some conference attendees said they're getting impatient about the SEC's wait-and-see attitude.

"If the commission doesn't put forward a view, there's going to be enormous confusion out there," said Sam Scott Miller, a partner at Orrick, Herrington & Sutcliffe LLP in San Francisco. The SEC isn't likely to know much more about the issue in a year than it does now, Miller claimed. "And in the meantime," he said, "[companies] are going to be making mistakes, or not making mistakes, depending on what view ultimately survives in the courts."

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Digital signatures create market potential
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Clinton signs e-signature bill into law
June 30, 2000
Senate sends e-signature bill to president's desk
June 16, 2000

Clinton signs digital signatures bill
(Computerworld)
Standards issue mars e-signatures
(Computerworld)
Digital signatures create market potential
(InfoWorld)
Digital signatures now legally admissible in U.K.
(IDG.net)
The speed of money
(Computerworld)
ABA to offer online authentication
(Computerworld)
New digital signature law prompts vendor scramble
(Computerworld)
Philippine Internet law raises thorny issues
(The Industry Standard)

Securities and Exchange Commission Interpretation: Use of Electronic Media
Securities and Exchange Commission
Securities Industry Association

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