6 September 2022 • 10 minute read
Digital Transformation: eSignature and ePayment News and Trends - 6 September 2022
Achieving Digital Transformation and Securing Digital AssetsA 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, our Insights piece highlights the upcoming reports required by the President’s Executive Order on digital assets. 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
Federal agency reports on responsible development of digital assets are due this week
By Margo H.K. Tank, R. David Whitaker, Andrew W. Grant, Liz Caires, and Emily Honsa Hicks
Back in March, President Joe Biden issued an executive order, “Executive Order on Ensuring Responsible Development of Digital Assets,” which among other things requires various federal agencies to provide certain reports on 180 days after the date of the Order. This means that such reports are due this week, right after Labor Day. Find out more about the reports.
REGULATORY DEVELOPMENTS
FEDERAL
Blockchain and virtual assets
Federal Reserve Board publishes letter regarding crypto-asset-related activities by Board-supervised banking organizations: On August 16, 2022, the Federal Reserve Board (Board) provided further information for banking organizations engaging or seeking to engage in crypto-asset-related activities. The supervisory letter outlines steps that the Board expects Board-supervised banks to take, such as assessing whether activities are legally permissible and determining whether regulatory filings are required. Board-supervised banks should notify the Board before engaging in crypto-asset-related activities.
Senator Toomey sends letter to FDIC alleging FDIC deterring banks from doing business with lawful crypto companies: On August 16, 2022, Senator Pat Toomey (R-PA) sent a letter to the director and acting chairman of the Federal Deposit Insurance Corporation (FDIC) stating that it had come to his attention that the FDIC may be improperly deterring banks from doing business with lawful crypto companies. Senator Toomey wrote that he received this information from affected parties and protected whistleblower communications. Senator Toomey asserted that, according to corroborated whistleblower communications, FDIC personnel are urging FDIC regional offices to send letters to multiple banks requesting that they refrain from expanding relationships with crypto-related companies, without providing any legal basis for doing so. Senator Toomey requested that the FDIC provide written answers to a variety of questions regarding whether the FDIC has instructed, requested, or suggested that banks refrain from doing business with or expanding business with crypto companies as well as whether the FDIC legal division has given an opinion on the legality of the FDIC engaging in such actions.
FDIC issues cease-and-desist letters to five crypto companies regarding 0 and misleading statements about FDIC deposit insurance: On August 19, 2022, the FDIC issued cease-and-desist letters to five companies regarding 0 representations made that stated or suggested that certain crypto-related products were FDIC-insured or that stocks held in brokerage accounts were FDIC-insured. This follows the FDIC’s letter on July 29, 2022 regarding deposit insurance and dealings with crypto companies.
Blockchain and Crypto Advisor Position Established. H.R. 4346, which President Biden signed into law on August 9, 2022, created a blockchain and cryptocurrencies advisory specialist position that will be established within the Office of Science and Technology Policy to coordinate Federal activities and advise the President on matters of research and development relating to blockchain, cryptocurrencies, and distributed ledger technologies.
STATE
Money Transmission and Virtual Currency
DC Department of Insurance, Securities and Banking issues bulletin on money transmission and virtual currency: On August 8, 2022, the District of Columbia’s Department of Insurance, Securities, and Banking (DISB) issued a bulletin addressing money transmission obligations when participants use virtual currencies. DISB stated that, in its view, transactions where entities receive for transmission, store, and/or later take custody of virtual currencies from consumers via kiosks, mobile applications, and/or online transactions, constitute engaging in money transmission. DISB does not view transactions where entities propose to sell virtual currencies from consumers in exchange for cash payments via kiosks or online transactions as engaging in money transmission.
Connecticut Department of Banking issues guidance on money transmission, including for virtual currencies: On July 20, 2022, the Connecticut Department of Banking (Department) issued guidance regarding when a money transmission license is required. The Department stated that “any time a person takes possession or control of monetary value belonging to another person for the purposes of holding such monetary value for a period of time or transmitting monetary value to a third party, such person engages in money transmission.” Regarding virtual currency, the Department explained that “[l]icensure may also be required of persons that engage in virtual currency transactions to the extent they take possession or control of virtual currency belonging to another person, or transmit or receive virtual currency for another person.”
Remote Online Notarization
New York proposes amendments regarding RON: On July 27, 2022, the New York Department of State issued a proposed rulemaking regarding remote online notarization to set the standards in New York for performing such notarizations. Public comments are due 60 days after publication of the notice of proposed rulemaking.
CASE LAW
FEDERAL
Electronic signature and contract formation
Email constitutes a writing for purposes of amending partnership agreement: In Steven Mizel Roth IRA v. Unified Capital Partners 3 LLC, 1:19-cv-10712-NRB (S.D.N.Y. Aug. 15, 2022), the court analyzed whether an email sent by a partnership’s general partner – here, the defendant – was sufficient to amend the partnership agreement and extend its duration. On August 23, 2019, the defendant requested that an employee of the entity that serviced the partnership’s funds send an email to all limited partners informing them of the general partner’s intention of extending the term. The email concluded “Thank You Ron & Walter.” First, the plaintiff argued that the email did not constitute a valid amendment of the partnership term, and that it was not a written instrument and it was not signed. To address these arguments, the court looked to the partnership agreement, which stated that it may only be amended by a “written instrument signed by the General Partner.” The partnership agreement further stated that “[a]ll notices, requests and other communications to any party hereunder shall be in writing (including electronic means or similar writing).” The court found nothing in the agreement indicating that amendments should be treated differently and concluded that an email was a “written instrument” for effectuating an amendment of the partnership agreement. Next, the court assessed whether the general partnership “signed” the email. The court looked at the ESIGN Act as well as the Delaware Revised Uniform Partnership Act (DRULPA), which states that whenever a “partnership agreement requires or permits a signature, the signature may be . . . [an] electronic signature.” Both the ESIGN Act and DRULPA define an “electronic signature” as an electronic symbol or process, attached to or logically associated with a document, and executed or adopted by a person with the intent to sign the document. Walter Klores, one of the partners, provided sworn testimony that he drafted the email and instructed the person to send it on his behalf and on behalf of the other partner, Ron Carner. The plaintiff merely rebutted that the email was unsigned. The court concluded that there was no genuine issue of fact regarding the intent to sign the email and held that no reasonable jury could conclude that the email was unsigned.
Electronic signing platform that “jumped” signer over sections of agreement did not constitute fraudulent inducement: In Vital Pharmacueticals, inc. v. Alfieri, 2022 WL 2981705 (S.D. Fl, July 27, 2022), the defendants argued, in part, that they were fraudulently induced to enter into an employment agreement with restrictive covenants. Specifically, the defendants asserted that the restrictive covenants were contained in a “non-descript” email sent by an electronic signature provider and such email was not sufficient to apprise the defendants of the restrictive covenants. While it was undisputed that the electronic signatures were genuine, the defendants claimed that there was a genuine issue of material fact regarding whether the electronic signature process fraudulently concealed the restrictive covenants. As part of this allegation, defendants argued that the plaintiffs did not use a process requiring that each page be initialed and that the electronic signature process did not require the defendants to scroll through the text of the employment agreement - rather the process “jumped” over multiple sections of the agreement to reach the next signature line. The court stated that it was not aware of any authority – and the defendants cited none – for the proposition that the process used to execute an employment contract can constitute fraudulent inducement. Further, the court found the argument unavailing that the defendants used the electronic signing process as designed to “jump” to subsequent signature lines. The defendants did not articulate why the process prevented them from reviewing their agreements prior to finalizing the execution process.
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RECENT EVENTS
Margo Tank and David Whitaker presented at the Electronic Signature & Records Association Member Meeting in June on the current legal and regulatory issues for the use and acceptance of electronic signatures. Their presentation can be found here.
RECENT PUBLICATIONS
Cryptocurrency and Digital Asset Regulation, published by the American Bar Association and co-edited by Deborah Meshulam and Michael Fluhr, including chapters by Meshulam and Fluhr and by Margo H.K. Tank and Andrew Grant.
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.
For more information
Our Global Tax Reform hub looks at the latest developments regarding US tax legislation.
In case you missed it
Read the latest issue of our bulletin Bank Regulatory News and Trends
Read the latest issue of our bulletin Consumer Finance Regulatory News and Trends
Trending
FTC explores sweeping new rules on data privacy and protection
Contacts
Learn more about our eSignatures and ePayments practice by contacting:
David Whitaker