Digital signatures, also known as eSignatures, have revolutionized the way we sign documents. In the United Arab Emirates (UAE), digital signatures provide a secure and legally binding way of signing documents and verifying the identity of the sender. They offer several advantages over traditional physical signatures, including convenience, efficiency, and security.
This article discusses the technology behind digital signatures, the legal aspects of their use in cross-border transactions, and the impact of digital innovation on cross-border payments. It also sheds light on the laws related to digital signatures in India and UAE.
By enabling documents to be shared and signed more quickly than with a wet signature, electronic signatures cut the time to signature and are particularly useful when the signing parties are in different locations. They also provide a secure and lasting record of the transaction, along with associated metadata and a full audit trail, which can be retained for future reference. With the benefits of digital signatures so clear and demand for their use so strong, legislation has been developed to cover their use.
DIGITAL SIGNATURES
Digital signatures are an important technology used for secure and tamper-proof electronic documents. In this article, we will discuss the technology behind digital signatures and how they work.
What is a Digital Signature?
A digital signature is an electronic signature that is used to verify the authenticity of digital documents and messages. It provides a secure and legally binding way of signing documents and verifying the identity of the sender. Digital signatures use encryption technology to ensure that the document or message cannot be tampered with and that the signature cannot be forged.
What is Digital Signatures Technology?
A digital signature is a mathematical technique used to verify the authenticity and integrity of electronic documents, messages, and software. Unlike physical signatures, digital signatures are not written on paper; instead, they are created using complex algorithms and encryption techniques.
PKI – Public Key Infrastructure
Digital signatures are based on a technology called Public Key Infrastructure (“PKI”). PKI is a set of protocols and techniques that allow secure communication over insecure networks. The PKI system uses two keys, a private key, and a public key, to secure communications between two parties. The private key is kept secret by the owner, while the public key is available to everyone.
How Digital Signatures Work Here is a step-by-step process of how digital signatures work:
- The sender selects the file to be signed using a document platform or application.
- The sender’s computer calculates the unique hash value of the file content.
- The sender’s private key encrypts this hash value to create the digital signature.
- The digital signature is then attached to the electronic document along with the public key of the sender.
- The recipient receives the document and verifies the digital signature using the sender’s public key. If the signature is valid, the document is deemed authentic and tamper-proof.
Benefits of Digital Signatures
Digital signatures provide several benefits over traditional physical signatures. Some of these benefits include:
- Enhanced security: Digital signatures use complex encryption algorithms, making them difficult to forge or tamper with.
- Cost-effective: Digital signatures eliminate the need for printing, mailing, and storing physical documents, making them a more cost-effective option.
- Environmentally friendly: Digital signatures reduce paper waste and promote a more sustainable environment.
- Convenience: Digital signatures can be created and verified remotely, making them a convenient option for businesses and individuals alike.
Encryption and Digital Signatures
Encryption is a crucial aspect of maintaining the confidentiality and security of electronic communication, particularly on open networks like the internet. Encryption involves converting plain text into a secret code, which can only be read by someone with the decryption key. There are two main types of encryption: secret-key or private-key encryption and public-key encryption.
Digital signatures use public-key cryptography to ensure the authenticity of an electronic document’s content and the sender’s identity. The sender selects the file to be digitally signed, and their computer calculates a unique hash value of the file content. This hash value is encrypted with the sender’s private key to create the digital signature. When the recipient receives the digitally signed document, they can use the sender’s public key to decrypt the digital signature and verify the document’s authenticity.
USE OF DIGITAL SIGNATURE IN CROSS BORDER TRANSACTION
Digital signatures have become a crucial tool in ensuring the security and legality of cross-border transactions. In this article, we will discuss the purpose of digital signatures, their legal aspects, the impact of digital innovation on cross-border payments, and the role of the UNCITRAL Model Law in this area.
Legal Aspects of Digital Signature in Cross-Border Transactions
The use of digital signatures in cross-border transactions has legal implications. It is crucial to ensure that the electronic signature is legally recognized in both the sending and receiving countries. The legal aspects of digital signatures vary from country to country, and it is essential to comply with the regulations and requirements of each country.
UNCITRAL Model Law on Electronic Commerce
The UNCITRAL Model Law on Electronic Commerce, which was adopted in 1996, is an international legal instrument that aims to facilitate the use of electronic communications in international trade. It provides a uniform legal framework for the use of electronic signatures, contracts, and other electronic documents in cross-border transactions. The Model Law has been adopted by many countries worldwide, and its provisions have been incorporated into national laws and regulations.
One of the key principles of the Model Law is the “functional equivalence” of electronic signatures to traditional signatures. This means that an electronic signature should be considered legally equivalent to a handwritten signature if it fulfils certain requirements, such as being uniquely linked to the signatory and capable of identifying the signatory.
Another important principle of the Model Law is the requirement for “reliable” electronic signatures. The law states that an electronic signature should be considered reliable if it is “as reliable as appropriate for the purpose for which the data message was generated or communicated.” This means that the level of security and reliability required for an electronic signature may vary depending on the nature and importance of the transaction.
The UNCITRAL Model Law provides a legal framework for the use of digital signatures in cross-border transactions, which helps to facilitate international trade and e-commerce. By adopting the Model Law, countries can provide legal certainty and promote the use of electronic signatures, which can help to reduce transaction costs, increase efficiency, and enhance security.
Impact of Digital Innovation on Cross-Border Payments
Digital innovation has transformed cross-border payments, making them more accessible, efficient, and secure. Four key experiences are accelerating the transition to the digital age. Firstly, Application Programming Interfaces (APIs) enable real-time FX rates. Secondly, Blockchain technology provides secure and transparent transaction processing. Thirdly, Cloud-based solutions make cross-border payments more accessible and efficient. Finally, Artificial Intelligence (AI) and Machine Learning (ML) enable advanced fraud detection and risk management.
DIGITAL SIGNATURES IN INDIA
Digital signatures have gained legal recognition in India under the Information Technology (IT) Act of 2000. This means that electronic signatures on electronic documents have the same legal status as handwritten signatures on physical documents. The basic purpose of digital signatures is to authenticate the document, identify the person, and make the contents of the document binding on the person putting digital signature.
Legal Status of Digital Signatures in India
Under Indian law, a written signature is not necessarily required for a valid contract. Contracts are generally valid if legally competent parties reach an agreement, whether they agree verbally, electronically, or in a physical paper document. The IT Act specifically confirms that contracts cannot be denied enforceability merely because they are concluded electronically. However, there are certain exceptions where documents need to be executed using handwritten signatures. These include:
- Negotiable instruments as defined in section 13 of the Negotiable Instruments Act, 1881 (such as promissory note or bill of exchange)
- Power-of-attorney as defined in section 1A of the Powers-of-Attorney Act, 1882
- Trust deed as defined in section 3 of the Indian Trusts Act, 1882
- Will as defined in clause (h) of section 2 of the Indian Succession Act, 1925, including any other testamentary disposition by whatever name called
- Contract for the sale or conveyance of immovable property or any interest in such property
The Information Technology (IT) Act of 2000 defines a “digital signature” as the authentication of any electronic record by a subscriber using an electronic method or procedure in accordance with the provisions of section 3.
Types of Digital Signatures in Indian
Digital signing in India is enabled using Digital Signature Certificates (DSC) that contains unique private and public key pairs that serve as the identity of an individual/signer. The Act mandates that DSCs are issued by authorities known as Certifying Authorities (CAs) after following a prescribed procedure. Signing using digital signature certificates issued by CAs is considered legal.
There are three types of digital signatures based on security levels: Class-1, Class-2, and Class-3 certificates. Class-1 certificates do not carry legal recognition since their validation is done on the basis of a valid e-mail and is not based on direct verification. In case of Class-2 certificates, the identity of the person is verified against a trusted pre-verified database. Class-3 is the highest level where a person is required to be present in front of a Registration Authority (RA) to prove their identity.
Aadhaar Based Signing
Another type of digital signature recently allowed in India is Aadhaar-based signing. Aadhaar ID is a unique identification number issued by the Indian government to all Indian residents. In this method, signers can apply E-Signatures to any online document by authenticating their identity using an eKYC service such as an OTP (one-time passcode) provided by an E-Sign Service Provider.
Digital Signatures in UAE
The UAE has issued a new electronic transactions law, Federal Decree by Law No. 46 of 2021 on Electronic Transactions and Trust Services, which aims to promote legal certainty in electronic interactions. The Law repeals the existing Federal Law No. 1 of 2006 concerning e-transactions and e-commerce (“Old Law”) and introduces legal concepts similar to the European eIDAS Regulation. The law provides a regulatory framework for electronic identification systems and trust services.
Electronic Identification Systems
Under the Law, the Telecommunications and Digital Government Regulatory Authority (TDRA) is to issue the rules, procedures, and standards related to electronic identification systems, verification procedures, and digital IDs, after coordination with concerned bodies.
Trust Services
The Law provides a regulatory framework for the following four main types of trust services:
- Electronic signatures
- Electronic seals
- Electronic time stamps
- Electronic registered delivery services
Licensing Requirement
All providers of trust services are required to obtain a license from the TDRA. The Law does not have any exclusion and allows the use of any form of electronic signature or electronic stamp unless the legislation provides otherwise.
Certified Trust Services
Certified trust services have stronger legal effects and a stricter assessment under the Law. No person may provide the certified trust services unless they have obtained a license from TDRA according to the provisions of the Law and its Executive Regulations.
Types of E-Signatures
The Law provides for three types of e-signatures with increasing levels of security:
- Basic electronic signatures
- Approved electronic signatures (AES)
- Certified Electronic Signatures (CES)
UAE Trust List
The TDRA will create and publish a UAE Trust List, which will list the licensees under the Law and their trust services. The Executive Regulations shall designate the regulations and conditions for inclusion in the UAE Trust List.
Trust Mark
The TDRA will provide a trust mark that can be used by certified trust service providers to indicate that they provide certified trust services that meet the requirements of the Law.
General Provisions Relating to Electronic Transactions
The Law regulates the validity of electronic documents consistent with the Old Law.
Applying Trust Services in Your Business
Businesses need to consider how to adopt appropriate trust services to make their electronic transactions more secure and reliable under the Law, even though there is a 12-month grace period, and implementing executive regulations need to be issued.
Overview
Digital signatures have a wide range of benefits that make them an essential component of cross-border transactions in the UAE. Enhanced security is one of the most significant advantages of digital signatures. As mentioned earlier, digital signatures use PKI and encryption to ensure that documents are signed by the correct person and have not been tampered with during transmission. This reduces the risk of fraud and ensures that transactions are conducted with confidence.
Another significant benefit of digital signatures is cost-effectiveness and sustainability. They eliminate the need for printing, mailing, and storing physical documents, which reduces paper waste and associated costs. This is particularly beneficial for cross-border transactions, where physical documents can be costly and time-consuming to produce and deliver.
Digital signatures are also very convenient and user-friendly. They can be signed and verified from anywhere, using any device connected to the internet, which ensures that transactions can be completed quickly and efficiently, without the need for physical meetings or the exchange of physical documents. This saves time and resources, making the entire process more streamlined and efficient.
However, as technology continues to evolve, it is crucial to stay up to date with the latest security measures to ensure the safety of digital signatures. Cybercriminals are always looking for new ways to breach security measures, and so it is essential to be proactive and implement the latest security measures to prevent potential security breaches. Keeping security measures up to date ensures that digital signatures continue to provide a reliable and secure method for conducting cross-border transactions in the UAE.