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

2. 2 I will share: Our approach to the problem Our legal conclusions Special concerns we have encountered

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

4. When is a paper document necessary? What is an “authentic” o Document? o 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? 4 Our Approach: Ask Even More Questions

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

6. Contract law: o 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: o 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 6 Legal Conclusions

7. Warrants o 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? o 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 o Concern: Specific local technical requirements could require county-by-county analysis to determine whether e-signed document is compliant o Approach that we are considering: consult with title companies to determine whether there is any uniformity among real estate recorders. 7 Special Concerns

8. Specimen Signatures o 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. o Resolution that we are considering: Establish independent means of confirming identity of individuals and update policies and form incumbency certificates accordingly Signatories domiciled abroad o 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. o 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 8 Special Concerns