Insight & Analysis

How COVID-19 is pushing digital signatures in trade

Published: May 2020

In April 2020, the International Chamber of Commerce called on governments to “take emergency measures to immediately void all existing legal prohibitions on the use of electronic trade documentation”. If heeded, it could revolutionise trade as we know it.

Woman giving an electronic signature

“Wet signature required”: the words most dreaded by any business at the moment, according to Jesse Chenard, CEO of fintech MonetaGo. With the majority of the world working from home, having in-person staffing and wet signatures isn’t possible or convenient whilst maintaining social distancing. The only feasible solution, therefore, is digitisation.

Indeed, when the International Chamber of Commerce (ICC) issued its call for governments to nullify legal roadblocks to electronic trade documentation, it cited the “significant levels of in-person staffing to review hard-copy paper documentation, which is required as a matter of national law in many jurisdictions,” as the main reason.

In the press release, Olivier Paul, Director, Finance for Development at the ICC said “With many banks unable to handle trade finance paper documents in person due to COVID-19, there is a growing risk that the underlying trade in goods could be disrupted.” Chenard notes from his experience in the fintech world that dealing with government agencies can be a challenge, purely because of the turnover of official personnel that can happen because of elections.

It’s already happening…a bit

In many jurisdictions digital signatures are used already, but they have limits. One country that is ahead of many others is India. The acceptance of digital signatures in India has moved beyond the basic tick box or typing of initials. Instead, individuals are able to have a private key which affixes their digital signature. It is then authenticated by the use of an asymmetric crypto system and hash function. After this, the electronic record can be verified by anyone who has the public key of the subscriber. The private key and the public key are unique to the subscriber,and constitute a functioning key pair.

Any person who has a prescribed identity card issued by the Government of India (Aadhar) may use the eSign Electronic Signature Service for secure signing of electronic documents, and there is no requirement to obtain the physical dongle that is often needed.

Elsewhere in the world, digital signatures are generally accepted for documents such as employment contracts, commercial agreements between corporates (eg NDAs, procurement documents, sales agreements), but aren’t an option for documents that need filing with authorities. In the US specifically, their use is even more limited. The list that digital signatures can’t be used for includes:

  • Wills, codicils and testamentary trusts.
  • Adoption and divorce agreements.
  • Court orders or notices, or official court documents.
  • Contracts or documents governed by the Uniform Commercial Code (UCC).
  • Notices of default, acceleration, repossession, foreclosure or eviction regarding primary residence.
  • Termination of health or life insurance benefits.
  • Health or safety recall or material failure notices of a product.
  • Documentation for transportation or handling of hazardous or toxic materials.

Is COVID-19 driving the change?

For Chenard, prior to the pandemic, there wasn’t much drive for change in this area. “We’ve had to start looking at how people work from home and how these things get done remotely,” he says. He estimates that before, only around 30% of people would rapidly embrace new rules on digitisation, whilst the remaining 70% would “wait and see”, leading to any change to be slower than its potential. Now though, the possibilities are becoming obvious to many. “People’s eyes are being opened to what is digital and what is not, both on the B2B and the banking side of things. I think there’s going to be a little bit more evidence to move that way from a government regulatory perspective.”

It’s important to note that the COVID-19 pandemic hasn’t introduced anything new though. Digitising workflows has been on the agenda of many companies for a long time. Instead, the current situation has given them the incentive to do so faster. “COVID has identified the need for us to rush it a little bit more, not necessarily because of the global pandemic, but because there are just a lot of inefficiencies,” says Chenard. He explains that banking processes are still largely manual, with a large amount still run on Excel spreadsheets, and so this pandemic has actually opened up opportunities to accelerate the modernisation of these systems.

It takes two to tango

When it comes to the 70% of laggards, Chenard has found that the figure generally doesn’t include the central banks. He explains that when he first entered the fintech space around six years ago, people jokingly wished him luck with interacting with these monolithic organisations. Instead, he’s found that most central banks are very open to new ideas. “I guess they’re not technology shops, so they don’t have that expertise and vision, so when you go in and work with them, and it’s a proposition that makes sense to them and is something they can understand in terms of the current regulatory framework, they’re really quite welcoming to it.”

It’s important to note that digitising workflows, and even just signatures, isn’t something that can be done overnight. Indeed, KYC and AML requirements mean that any solution would need to be suitably secure. Chenard explains that it’s not necessarily about getting companies to implement massive changes in their internal processes, but rather providing them with better risk management. In terms of global trade finance or global banking, building secure networks with technology that the regulators are fully able to understand, will, he thinks, take time. But, the moment to speed the process up and possibly follow India’s route to making digital signatures practical and fully legally binding, is now.

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