Whether you are slowly easing into electronic record retention, facing it head on, or in a state of denial, most likely your bank has acknowledged that electronic record retention is the future. The lower cost and convenience of storing documents online make it an attractive option for many businesses, although the prospect of making the switch can be overwhelming. We are frequently asked to assist banks in this endeavor and have a few tips to help you on your way:
1. Quality control is essential. Tossing all that paper can be a liberating feeling, but be careful not to destroy paper documents that have been converted to electronic form until someone has confirmed that the scanned document is a true, complete and readable representation of the original. Don’t forget the back side of double-sided documents, and make sure that any writing in the margins doesn’t get cut off. If the electronic copy is not a true and complete representation of the original, you could face major problems from regulators or customers or in court.
2. Not every document may be suitable for electronic retention. While electronic retention has come a long way, there are still some documents that you will want or need to keep in paper form. For example, promissory notes are typically negotiable instruments, meaning the right to payment on the instrument may be transferred from one party to another by transferring the paper itself. Meeting “control” requirements under the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) can be complicated and may require expensive software; thus, many banks continue to keep the paper original of all promissory notes. Further, paper certificates of title for cars and other titled vehicles need to be retained. These are just a couple examples of certain types of documents banks should continue to keep in original, paper form—at least for now.
3. It may be time to revisit how long you are keeping different records. Typically, a bank record retention policy includes a schedule that indicates when different types of documents will be destroyed. Determining how long to keep different types of documents can be challenging. Legal requirements cover everything from a bank’s employment records to its Bank Secrecy Act records to its credit applications and beyond. Record retention laws lurk everywhere (and are often overlooked).
Once a bank determines how long it is required to keep particular documents, it must then ask itself how long it wants to keep those documents. Some banks determine the longest retention period for a group of related documents (e.g., those kept in a loan file), then keep all documents in that group for that period of time. This method may require fewer specific retention rules for different documents, but it also is likely to result in the bank keeping some documents longer than is technically required or needed. Several factors, including the capabilities of the bank’s electronic document storage software, available manpower, the cost of storage and other business needs will influence your strategy in this area.
4. Take another look before you toss. At the end of a document’s retention period, take one last look before destroying the record to make sure there isn’t any particular reason to keep it. Perhaps the document is relevant to anticipated litigation and somehow escaped being tagged with a litigation hold in accordance with your record retention policy. Or, perhaps a document was miscategorized and is not due for destruction yet. Someone should be in charge of taking a final look before a document is destroyed.
5. Stick to your retention policy. If you do deviate from your routine destruction schedule for any reason, that reason should be documented. It may not seem like a big deal if you routinely keep documents longer than your record retention policy requires or if you are not always consistent in that area, but by failing to adhere to your policy, you may be giving up valuable protections your policy could provide if litigation arises.
State and federal courts now consider electronically stored documents, including e-mails and text messages, to be discoverable in litigation. Thankfully, they also recognize that companies cannot keep documents forever, so their rules prevent sanctioning a company for failure to provide documents if they were destroyed in accordance with routine document destruction procedures. If your bank does not consistently follow its policy, however, a court may determine that the bank does not follow routine procedures or that it failed to act in good faith when it destroyed relevant documents.
Implementing an effective electronic record retention policy requires more than just an organized system of virtual files. A good policy requires development of a comprehensive strategy that maximizes efficiency and effectiveness while minimizing risk.