Exploring Acceptance and Legal Nature of eRecords Within a Paper-Based Framework

1. Exploring Acceptance and Legal Nature of eRecords Within a Paper-Based Framework Electronic Signature & Records Association Rafael Petrone November 14, 2012

2. Our approach to the problemOur legal conclusionsSpecial concerns we have encountered I will share:

3. Our Approach: Ask Questions • What laws apply? • How do different laws conflict / work together? • Definitions, what is a: • Document? • Record? • Signature? • What is the legal effect of • A signature? • No signature?

4. Our Approach: Ask Even MoreQuestions • When is a paper document necessary? • What is an “authentic” • Document? • Signature? • What is an “original” document? • How can we prove that a document was signed? • How can we know for sure that a given person actually signed? • What are the legal requirements of other countries? • If the laws of two countries differ, which do we follow?

5. Our Approach: Define the Scope of the Problem • Benchmark: • Paper and Ink – has some inherent limitations • An electronic approach must be as good as paper, but not perfect • Geography: • Focus on the U.S. (for now) • Counterparty: • Focus on commercial transactions • Defer review of consumer transactions

6. Legal Conclusions • Contract law: • With some exceptions, a document executed with an electronic signature will have the same legal effect as a paper version executed with a handwritten signature. • Evidence: • A document executed and stored electronically is likely to survive an evidentiary challenge so long as we meet key criteria: • We demonstrate that our system has an acceptably low error rate • Our security measures are sufficiently robust • Our system is relatively simple (no algorithms, statistical models, simulations) • The execution process is routine and part of our ordinary business practices • Records are stored at or near the time of execution

7. Special Concerns • Warrants • Concern: Is a warrant a certificated security? If so, then what would be the equivalent of a transferrable record to permit transfer, encumbrance and enforcement of a warrant executed electronically? • Resolution: Revise our warrant so that issuer and any holder agrees to negotiate an electronic version. If a warrant is deemed to be a security for purposes of Article 8, these provisions are intended to overcome obstacles negotiating the warrant because it might fall under the rules for certificated securities. If a warrant is not a security, it would have the same status as any other contract. • Real Estate Records • Concern: Specific local technical requirements could require county-by-county analysis to determine whether e-signed document is compliant • Approach that we are considering: consult with title companies to determine whether there is any uniformity among real estate recorders.

8. Special Concerns • Specimen Signatures • Concern: Signature cards and incumbency certificates call for specimen signatures to serve as a reference to confirm identity of signatory. Adopted signatures generated by a computer disrupt this process. • Resolution that we are considering: Establish independent means of confirming identity of individuals and update policies and form incumbency certificates accordingly • Signatories domiciled abroad • Concern: Because the scope of our research is limited to U.S. law, we cannot be certain whether an e-signed document is enforceable abroad. • Resolution that we are considering: • Assess likelihood of enforcing the document outside U.S. • Evaluate risk of loss if document is deemed unenforceable by a non-U.S. court • Research laws of specific foreign jurisdictions • Require paper/ink execution where there is doubt or where local law or custom demands it