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Law360 (December 15, 2020, 2:21 PM EST )
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| David Bell |
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| James Evans |
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| Soo Hwang |
The requirements for electronic signatures are set forth in the EDGAR filer manual, and include that the signing process for the electronic signature:
- Require the signatory to present a physical, logical or digital credential that authenticates the signatory's individual identity;
- Reasonably provide for nonrepudiation of the signature by the signatory;
- Provide that the signature be attached, affixed or otherwise logically associated with the signature page or document being signed, such that the signatory has notice of the substance of the document and an opportunity to review, and may confirm that the signatory signed such document at a later date; and
- Include a timestamp to record the date and time of the signature so that it can be demonstrated that the electronic signature precedes the filing of the document on the SEC's EDGAR system.
Pursuant to new rules, before a signatory initially uses an electronic signature to sign a document that will be filed electronically, the signatory must manually sign a document attesting that the signatory agrees that the use of an electronic signature in any filing constitutes the legal equivalent of such individual's manual signature.
The SEC's release notes that the requirements are specifically designed to allow for different types and forms of electronic signatures, so long as all of the criteria outlined above are met.
Under the new rules, a company must continue to retain a copy of the electronically signed document for a period of five years, regardless of whether such document is signed manually or electronically, and must furnish a copy of it to the SEC upon request. The proposed rule specifically notes that authentication documents and attestations, regardless of whether electronically or manually signed, may be retained and stored electronically by the company.
How Public Companies Will Benefit
The use of electronic signatures under the new rules will promote efficiency in the filing process, with no loss of documentary integrity for filed documents, as programs such as DocuSign have been used routinely in connection with authorizations by boards of directors, as well as the execution of important transaction documents. Since timing of execution of such documents is crucial, DocuSign and other leading e-signature programs are already designed to record the date and time of a signature when a document is electronically signed, as well as other authentication information.
The SEC's previous rules requiring a manual, or physical, signature would often require detailed coordination to accommodate various logistical challenges, such as a signatory being out of the office or travelling on vacation.
These issues became exacerbated in the early stages of the COVID-19 pandemic, when it became clear that corporate signatories to SEC filings would frequently face logistical challenges for the traditional processes of obtaining and retaining their manual signatures. For example, many signatories did not have printers at home, even if they could take a picture with their phone in lieu of having a scanner.
The SEC's new rules address this logistical challenge, and seem to recognize the urgency of the matter, as well as its widespread support. The adopting release discussed the complete lack of opposition and that the rule did not follow the typical Administrative Procedure Act requirement for notice and comment. The SEC's statement[2] that it would not recommend enforcement action for filers that adopt the rule before its formal effectiveness further illustrates its desire to modernize public company reporting in addition to the urgency of addressing the current pandemic.
The new rules allow SEC filings to catch up with the broad use of electronic signatures in all manner of corporate processes. For instance, Delaware law expressly allows electronic signatures on board of director actions, and companies routinely enter into all manner of binding legal agreements, including major transactions such as mergers and acquisitions, using this technology.
Reporting companies will now be able to file periodic and current reports and registration statements, as well as Section16 filings and filed correspondence with the SEC, using electronic signatures. The electronic signature process will also be available for use with the CEO and chief financial officer certifications required to be filed with Forms 10-K and 10-Q.
We believe these new rules will promote greater efficiency in the document filing process — allowing companies to integrate SEC filings with their existing record-keeping systems and internal signature process flows that utilize electronic signatures, with no compromise to the confidence of companies that the filed documents have indeed been timely signed by the appropriate signatory.
We believe that the flexibility allowed by the new rules will be well received by reporting companies and other filers. A number of companies and signatories have already expressed relief at the news that they will be able to use electronic signatures, and are looking toward practical implementation.
The new rules simply allow SEC filings to utilize the same widely-available technology that companies are routinely employing in a wide variety of their other document-signing and disclosure control procedures.
The amended rules are in Rule 302(b) of Regulation S-T and Section 5 of the EDGAR filer manual.
David A. Bell and James D. Evans are partners, and Soo Hwang is a senior attorney, at Fenwick & West LLP.
Fenwick counsel Ron Llewellyn contributed to this article.
Disclosure: Fenwick & West and two other Silicon Valley-based law firms submitted a rulemaking petition to the SEC on April 15, asking it to amend Regulation S-T to allow electronic signatures on filed documents in addition to manual signatures. Fenwick & West also serves as counsel to companies that develop and market electronic signature systems.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] See SEC's Final Rule: Electronic Signatures in Regulation S-T Rule 302, available at https://www.sec.gov/rules/final/2020/33-10889.pdf.
[2] See SEC's announcement: "Staff Statement Regarding Rule 302(b) of Regulation S-T in Light of COVID-19 Concerns," available at https://www.sec.gov/corpfin/announcement/staff-statement-rule-302b-regulation-st-covid-19.
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