3 June 2021 • 10 minute read

Digital Transformation: eSignature and ePayment News and Trends - 3 June 2021

Achieving Digital Transformation and Securing Digital Assets

Editors:Margo Tank Elizabeth (Liz) Caires

A fact of business today is that customers – both consumers and other businesses – and employees expect to transact digitally. To remain competitive, companies find themselves increasing their efforts to digitally transform their businesses.

Successfully implementing this transformation requires careful planning to ensure regulatory compliance, a smooth integration with existing business technology and a positive customer experience.

Each issue will feature in-depth insight on a timely and important current topic.

In this issue, for our Insights piece, we provide an analysis of a recent Texas Supreme Court decision which reaffirms a long line of cases enforcing electronic signatures where a secure, reliable system, in compliance with the requirements of the Uniform Electronic Transactions Act and the federal ESIGN Act, is used. This issue also includes reports on other recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.

For related information regarding blockchain and digital assets, please see our monthly bulletin Blockchain and Digital Assets News and Trends.

INSIGHT

Enforcing a disputed electronic signature – recent case highlights importance of authentication, audit trails, and record management

Margo H.K. Tank , R. David Whitaker, Andrew W. Grant and Liz Caires

A recent decision by the Supreme Court of Texas nicely illustrates both the burden of proof for enforcing a disputed electronic signature and the wisdom of employing a robust authentication process, a comprehensive audit trail, and a secure record management system for any electronically signed document that is likely to be challenged. Learn more.

LEGISLATIVE DEVELOPMENTS

STATE

Digital assets

Nebraska adopts Financial Innovation Act to establish digital asset depository institutions and enacts a new article, Article 12, to the UCC to address controllable electronic records. On May 26, 2021, the Nebraska governor signed into law the Nebraska Financial Innovation Act, which creates digital asset depository institutions as a new financial institution. Specifically, the Financial Innovation Act provides for the following:

Establishes procedures for incorporation, chartering, operation, regulation, liquidation, conservatorship and voluntary dissolution of digital asset depository institutions
Prohibits lending of fiat currency by digital depository financial institution
Provides for regulation and examination by the Nebraska Department of Banking and Finance
Requires principal operating headquarters and office of chief executive officer in Nebraska
Allows digital asset depositories to be held by a bank holding company and allow existing bank investment in a digital asset depository institution
Specifies compliance with applicable federal laws (including Know Your Customer, Beneficial Ownership, Bank Secrecy Act and Anti-Money Laundering) and requires operation in a safe and sound manner to benefit its customers

The bill also revises the Nebraska Uniform Commercial Code by adding a new section, Article 12, to address controllable electronic records. The new article 12 sets forth, in part, when a person has “control” of a “controllable electronic record.”

Electronic signatures and records

Iowa revises UETA to expressly include distributed ledger technology. On May 20, 2021, the governor of Iowa signed into law a bill that amends Iowa’s Uniform Electronic Transactions Act to expressly include distributed ledger technology and smart contracts.

Maryland enacts law addressing electronic delivery for certain insurance notices. On May 13, 2021, the Maryland governor approved a bill that (i) authorizes the Maryland Insurance Commissioner to send certain notices and communications by electronic means under certain circumstances; and (ii) authorizes, under certain circumstances, certain persons to send to the Commissioner certain notices and communications by electronic means approved by the Commissioner.

Washington enacts Uniform Electronic Wills Act. On April 26, 2021, the Washington state governor signed into law the Uniform Electronic Wills Act. The act permits testators to execute an electronic will and allows probate courts to give electronic wills legal effect. The act retains core formalities of writing, signature, and attestation, but makes them executable electronically. An electronic will must be:

a record that is readable as text at the time of signing
signed by the testator or another individual in the testator's name, in the testator's physical presence, and by the testator's direction and
signed by at least two competent witnesses at the testator's direction or request and in the physical or electronic presence of the testator.

REGULATORY DEVELOPMENTS

FEDERAL

Bi-partisan group of senators launch US Senate Financial Innovation Caucus: Senators Cynthia Lummis (R-WY) and Kyrsten Sinema (D-AZ), as co-chairs, launched the US Senate Financial Innovation Caucus to highlight responsible innovation in the financial system and using financial technologies to make markets more inclusive and safe. The caucus will focus on a number of critical issues, including:

Distributed ledger technology (blockchain)
Digital assets
Artificial intelligence and machine learning
Consumer protection
Combating money laundering
Faster payments
Central bank digital currencies

FDIC issues request for information and comment related to digital assets: On May 17, 2021, the FDIC issued a request for information and comment regarding insured depository institutions’ current and potential activities related to digital assets. The FDIC stated that digital asset use cases may fall into one or more broad categories:

Technology solutions
Asset-based activities
Liability-based activities
Custodial activities

The FDIC is asking insured depository institutions for responses to questions regarding (i) current and potential use cases, (ii) risk and compliance management, (iii) supervision and activities, (iv) deposit insurance and resolution, and (v) additional considerations.

FinCEN to host special Innovation Hours Program focusing on privacy-preserving principles: The Financial Crimes Enforcement Network (FinCEN) will host a virtual FinCEN Innovation Hours Program on September 9, 2021 to focus on privacy-preserving principles in developing technical solutions to enhance financial services innovation while countering illicit activity and national security risks in the U.S. financial system. FinCEN is encouraging companies to develop solutions to privacy issues, such as homomorphic encryption, zero-knowledge proofs, and other technology that balances privacy and financial integrity.

STATE

State regulators seek comment on proposed nationwide money service business license requirements: On May 24, 2021, the Conference of State Bank Supervisors (CSBS) stated that it was seeking comment on proposed nationwide licensing requirements for money service businesses. CSBS stated that the proposed structure is based on a single set of nationwide requirements reviewed by a lead state agency.

CASE LAW

FEDERAL

ADA

Court denies motion to dismiss because website deemed place of “public accommodation.” In Juaqez v. Dermpoint, Inc., 2021 WL 2012512 (S.D.N.Y. May 20, 2021), the court held that the plaintiff’s complaint – which alleged that the defendant’s website presented barriers that inhibited a blind person’s ability to use the website in the same manner as sighted persons can – stated a violation of the Americans with Disabilities Act because websites qualify as places of public accommodation, even when not attached to a brick-and-mortar store.

STATE

Electronic signatures and general online contract formation

Court affirms denial to compel arbitration. In Bannister v. Marinidence Opco, LLC, 2021 WL 2036529 (Cal. Ct. App. Apr. 30, 2021), the court affirmed the trial court’s denial of the defendant’s motion to compel arbitration because substantial evidence existed to support the trial court’s conclusion that the defendant failed to authenticate the electronic signature on the arbitration agreement as the electronic signature of the plaintiff.

UPCOMING EVENTS

Partners Isabelle Ord and Austin Brown and Senior Counsel Noah Schottenstein are leading a webinar titled “Fair Lending Deep Dive - Emerging issues and tips for navigating the renewed regulatory emphasis on fair lending compliance” on June 14, 2021 from 12:00 to 1:00 pm EST. Register here.

RECENT EVENTS

In the 2021 edition of Chambers Fintech, Chambers and Partners identified DLA Piper as “one of the foremost firms in the country for transactional FinTech matters.” Partners Margo Tank and David Whitaker were recognized individually for their work in FinTech.

Partners Margo Tank and David Whitaker have each been named “Acritas Stars – independently rated lawyers” for 2021. Acritas Stars are client-nominated attorneys recognized for their stand-out performance in private practice.

The Financial Times has ranked DLA Piper second on its lists of Most Innovative Law Firm and Most Digital Law Firm in the FT North America Innovative Lawyers 2020 report. The Financial Times particularly noted our pro bono legal work on behalf of the UN’s World Food Programme, which the authors of this publication assisted with.

RECENT PUBLICATIONS

The Law of Electronic Signatures, 2020 - 2021 Edition (Thomson Reuters) is an essential guide to electronic signatures and records laws, including the context in which the laws were adopted and the ways in which the authors believe the drafters intended them to be interpreted. The publication is prepared by authors, including Margo Tank and David Whitaker, with more than 30 years combined experience that includes involvement with the drafting and passage of Electronic Signatures in Global and National Commerce Act (ESIGN), the preparation of the Uniform Electronic Transactions Act (UETA), the creation of SPeRS™ (the Standards and Procedures for electronic Records and Signatures), and serving as counsel to the Electronic Signatures and Records Association. The insights they provide will be indispensable to anyone seeking to understand the impact of, and the liability associated with, using electronic signatures and electronic records.

These insights include:

Details on the legal requirements for using electronic signatures and records, including delivery, presentation, signing, and record retention
Comprehensive tables itemizing the state variations to the uniform UETA language
Special considerations for using electronic signatures and records in connection with emerging and evolving technology
Using electronic records and signatures in specialized transactions and documents, such as securities, chattel paper, and mortgages
Analysis of the interplay between ESIGN, UETA, and many other key laws and regulations
Identification and summaries of recent legal developments and court cases impacting electronic signatures and records

The MBA Compliance Essentials Remote Online Notarization State Surveys, developed by DLA Piper, provides a comprehensive look at RON requirements in each state that has enacted RON legislation. These fully editable surveys are organized by category of requirements, including registration, technology, seal and signature, certificates of RON acts, journal, authentication, session, recording, and additional requirements. Companies can purchase the full package which includes surveys for all states that have enacted RON legislation along with a matrix summarizing state requirements, or companies can purchase information about individual states as needed. Read more.