01 July 2015

Electronic signatures: what should we know

The essential feature of electronic signatures is digital certification technology. Any technique that can verify one party’s identity and recognize electronic data in the course of electronic communications falls within the category of electronic signature. Electronic signatures have become widely used to secure financial transactions which are increasingly undertaken online over the internet. When disputes arise over an online financial transaction, the legal effect of an electronic signature in an electronic contract or document becomes a key preliminary issue.

A. The legal effect of an electronic signature

The validity of an electronic signature is essential because of the importance of being able to confirm (a) the party to whom the electronic signature belongs and (b) the actual documents recognized by the signatory. In other words, the court needs to be able to rely on the electronic signature to verify both the identity of the signatory to the contract (who signs this electronic document) and to determine whether that party has recognized the contents of the electronic document as evidence of the true intention of the contracting parties. The verification of these features is a vital foundation to a court deciding on the facts in a dispute as well as to deciding rights and duties.

B. Types of electronic signatures verified by the court

Various kinds of electronic signature are used in online transactions with various different legal implications. The Law of the People’s Republic of China on Electronic Signatures(effective as of April 1, 2005), sets out certain criteria to be considered when assessing the validity of e signatures. According to Article 13, “If an electronic signature complies with the following conditions, it shall be regarded as a reliable electronic signature: (a) if data made by electronic signature is used for the electronic signature, and it is owned exclusively by the electronic signatory; (b) if at the time of signing, the data made by the electronic signature is controlled only by the electronic signatory; (c) if after signing, any alteration to the electronic signature, can be identified; and (d) any alteration to the contents and form of any electronic data can be identified after signing.”

Article 13 describes general criteria. Whether a specific type of electronic signature complies with these standards depends on the courts consideration of the factual evidence. After reviewing relevant cases, we have found that the courts have accepted the following types of electronic signatures: (a) bank card information plus a password; (b) USB key (a USB flash device) plus a bank card password; (c) transaction number plus a password; (d) platform account plus password for the platform and (e) username plus password. All these types of electronic signatures have been expressly accepted as meeting the verification standard by the courts. As for other types, as long as they comply with the criteria prescribed in the Law of the People’s Republic of China on Electronic Signatures then the courts will likely verify them as well.

C. Unauthorized use of electronic signatures: who bears the liability?

It is not unusual for the data of electronic signatures (incl. usernames and passwords) to be stolen, falsely used or forged. Many internet financial products provide an authentication service using SMS for online transactions to enhance the security of a transaction and a user’s account, SMS verification by sending random codes to a user functions as an electronic signature, and can reduce the likelihood of disclosure of confidential data used to verify an e signature.

If any confidential data used to verify an electronic signature, like a password, is disclosed, both the user and online financial enterprises may suffer loss. In traditional banking services, normally users bear the loss. When it comes to online financial transactions, the online financial enterprise is more likely to suffer the loss. (Such losses may be of various kinds. We will discuss them further in following articles.) Sometimes, the disclosure of confidential data used in an electronic signature can constitute a criminal offence. As for civil liability the responsibility for loss can vary depending on the facts.

In civil cases the courts have found the party who has made unauthorized disclosure is responsible for any loss. In data disclosure cases involving traditional financial institutions (banks for instance), the courts have found that improper storage or misuse by users is more likely than flaws in the banking system. Therefore, without evidence to prove fault by the bank, the courts will more likely rule that users must bear losses.

The situation is more complex when it comes to online financial transactions. For a start, the court regards the online financial system as less reliable than the banking system. If a user claims and shows flaws in the security of an online financial system, then the internet financial enterprise must counter by demonstrating the reliability of the system to generate, store, transmit and save the data of electronic signatures.

Based on our experience, internet financial enterprises must provide evidence of: the operational stability of the system; the reliability of data storage; the conformity and correctness of the case-related operation. This evidence needs to be persuasively presented so that the court can picture it easily. In following articles I will discuss in more detail the production of evidence involving online financial transactions.

 “Electronic signature” is a technical term referring to a signature which relies on certain verification methods. Technology is changing rapidly and techniques for verifying an electronic signature will also change. Therefore the issues lawyers encounter in online financing disputes will not stay same. Plaintiffs and defendants must prepare for each case in accordance with its particular facts and cannot approach disputes over e signatures with standard strategies.

Editor’s note: This article was originally written in Chinese, and the English version is a translation.

This article was first published on Chinalawinght.com

Belt and Road Hub

We explore the opportunities the Belt and Road Initiative brings for your business, and provide our comprehensive, professional services to help.

Belt and Road

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    China is poised to rollout a new national emissions trading scheme market demonstrating that China is committed to mitigating climate change.

    03 June 2021

    China’s launch of a central bank digital currency (CBDC) has become a question of when and not if. The more important question for businesses is: how do I get ready for a digital RMB?

    27 April 2021

    This series of articles focusses on the sectors of Chinese debt markets that are in the process of opening up to foreign investors. In this article, we will touch on the state of the PRC real estate...

    19 April 2021

    It’s official. On 5 March 2021 the UK Financial Conduct Authority (FCA) announced that all LIBOR settings will either cease to be published by any administrator or no longer be representative, with...

    09 March 2021

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.