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Digital Signatures: Are They Really Do-Or-Die In The Financial Sector?

Digital Signatures: Are They Really Do-Or-Die In The Financial Sector?

It wasn’t long ago that digital signatures seemed like a left-field suggestion. Sure, they worked for accepting a parcel with a squiggly, unintelligible lines, but most of us would’ve contested their place in business, particularly in high-stakes industries like the financial world. After all, there are rules to abide by, and security risks at play.

Fast forward to the pandemic, when a literal inability to see clients in person left even financial enterprises leaning heavily on those digital scrawls. Now, as many as 50% of enterprises use digital signatures to some extent, while 69% of respondents prefer this method to in-person signings. 

After all, digital signatures are convenient. But, how exactly did they become such a do-or-die matter in the financial sector, and what issues must we still overcome before they become a definite best option? 

What are digital signatures?

We’re not here to teach you how to suck eggs – you know what digital signatures are and, if not…well, it isn’t difficult to work it out! But, what we need to understand before we can effectively implement them in fraught financial sectors is what exactly different types of digital signatures offer, and which financial documents might benefit from their implementation. 

To start answering those questions, it’s first worth considering different types of relevant and accepted digital signatures right now, which include – 

  • Simple electronic signatures (SES): Simple electronic signatures are signatures attached to other pieces of data or file types (e.g. a scanned signature that’s then added to a digital document). Most commonly used when authentication isn’t required.
  • Advanced electronic signatures (AES): AES are digital signatures that must use a Certificate Authority (CA) to identify, authenticate, and ensure the integrity of signed documents. 

Digital signatures serve a range of uses in modern financial institutions, including – 

  • Electronic fund transfers
  • Account applications
  • Lending requirements
  • Account changes/management
  • And more

The Financial Sector

What benefits do digital signatures offer financial institutions?

# 1 – Ensuring security

The financial sector has always been at risk from threats like identity theft and other fraudulent behaviours that can be difficult to monitor with in-person signatures. This is also true of SES digital signatures, but the authenticity trails provided by both AES and QES make it far easier to ensure transaction security and authenticity. Far from relying on human observation, these tools enable more reliable real-time client history checks. It’s also far harder for fraudsters to effectively tamper with digital documents of this nature. 

# 2 – Revealing new regulatory landscapes

Regulatory compliance is key in financial sectors that are dealing with reams of sensitive client information. Understandably, issues including human error and also the loss of vital paperwork have long put that compliance at risk. Digital signatures have helped to overcome that by heralding a brand new regulatory landscape where it’s far easier to automate processes, secure digital data, and maintain privacy laws. Digital signatures are also beneficial for creating complete audit trails, which makes it far easier for financial institutions to display transparent regulatory compliance in all areas. 

# 3 – Streamlining processes

While not necessarily unique to the financial sector, it’s also worth noting that digital signatures can significantly streamline internal processes. The ability to reduce processing times is especially useful in the overwhelmed world of finances. Digital processes that free vital teams to perfect operations elsewhere can even lead to company-wide improvements in everything from account handling to resource allocation and more. 

# 4 – Cutting costs

As well as requiring face-to-face meetings that can eat into daily productivity, the costs of in-person signings can be high, requiring everything from printing and scanning costs, to secure postage and beyond. By comparison, digital signatures can effectively cut costs, allowing for more affordable document storage, management, and handling in all cases. 

# 5 – Financial innovation

Digital signatures are driving significant innovation in financial sectors including banks, credit unions, and government agencies. The ability to provide 24/7 financial transactions in real-time is especially changing the financial landscape. Plus, with less time taken up on minor tasks like manual authentications, it’s never been easier for financial institutions to dedicate true time and power to significant innovations elsewhere in their operations

The financial world

The ongoing issues with digital signatures in the financial world

The benefits of digital signatures across financial institutions speak for themselves. But, with digital signatures only really gaining widespread use since the pandemic, some pressing usage issues do remain. It’s essential to overcome these before digital signatures can become a true go-to across the financial world, and they include – 

1) Failure to meet software requirements

If financial institutions accept signatures on an unsecured web page, they risk falling significantly short of regulations for both data protection and client authentication. They may also find it difficult to obtain digital signatures in the first place due to software limitations on both ends. Overcoming this requires the use of supported and encrypted digital documents that preferably don’t rely on any third-party software.

There are now programs like Docusign which allow for the easy collection of basic SES signatures. But, for more complex compliance via AES or QES signatures, financial institutes must implement something like Apryse SDKs, which allow for simple, signable PDF creations across in-house software. Only then is it possible to offer the level of reassurance necessary to make digital signatures a reliable, and simple option for both parties moving forward. 

2) Navigating new legalities

Electronic signatures are now legally recognised in many countries, based on things like the 2016 Electronic Identification and Trust Services for Electronic Transactions Regulations and the Electronic Communications Act of 2000 (ECA). However, there are new legalities to navigate before financial institutions can confidently implement digital signing processes. 

These include considerations like the types of accepted digital signatures (generally SES, AES, and QES), the stipulations attached to those signatures (e.g. the need for PKI certificates), and the types of documents that can be digitally signed. For financial institutions especially, the law right now generally states that digital signatures on things like banking or lending files should be considered on a case-by-case basis. 

3) A rise in fraud risks

This may seem contradictory considering that digital signatures can reduce many risks of financial fraud. However, digital signatures do also pose security risks of their own, especially if they aren’t handled properly. Namely, security issues arise from the fact that many digital programs are susceptible to hacking and malware. This can make digital authentication a fraught process. 

Luckily, there are some relatively easy ways to overcome this setback. For one thing, the right software is, again, essential here, and should include encrypted data and secure file storage. Further authentication processes should also be used for high-risk transactions like money transfers, such as phone or video calls to ensure reliable client authentication. 

Financial transactions

4) Potential problems for overseas transactions

The legality of digital signatures is expanding, but it’s not worldwide quite yet. There are surprising differences in laws, even across some countries. In America, for instance, various federal laws require either different forms of authentication or grant digital signatures varied legal status. 

For global financial institutions, the use of digital signatures can, therefore, lead to murky waters. And, the only way to overcome this is through careful homework. Any global financial player wishing to use digital signatures must be especially aware of where these forms of authentication are allowed, and any upcoming regulatory changes that may affect that.

5) Setbacks with Certificate Authority

As mentioned, any AES or QES requires Certificate Authority (CA) authentication, which effectively ensures the protection and authenticity of digitally signed documents. Most typically, a CA will come from a third party, who will independently verify customer identities, and generate a digital certificate before a signature is accepted. 

Yet, as the use of digital signatures in financial compliance increases, some institutions are at risk of implementing a CA from start-up organisations that may lead to unverifiable signatures. 

This leaves digital processes at significant risk. One way around the problem is for financial institutions like banks to become a CA themselves, but this can be a costly and time-consuming process. Alternatively, financial institutions should seek a carefully vetted CA with specific experience dealing in financial contracts. 

Are digital signatures set to transform the financial world?

Ultimately, only time will tell the true traction that digital signatures can gain in the financial world. The use of efficient, accessible digital signings for a range of financial purposes is undeniable. But, there are still some pressing issues to overcome before faceless signings are the safest or even the easiest option. 

That said, when you consider the trajectory of digital signings in other, less compliant-based sectors, it seems inevitable that digital financial signings will soon make themselves at home here. This means that it falls on our financial experts to find ways to make them work without compromise. 

And, when they manage that, either through improved authentications, better software, or just a stronger general understanding of the risks and benefits, we can all start to enjoy easier financial transactions at last. 

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