On May 2, 2016 the North American Securities Administrators Association (NASAA) issued a release requesting public comments on a proposed Statement of Policy (SOP) that would allow issuers and its selling agents to use electronic offering documents, (e.g., subscription agreements), when conducting securities offerings. Also, the proposed SOP would allow issuers to accept electronic signatures.
The proposed SOP includes two parts, one covering the use, transmittal, and required security measures of electronic offering documents, and the other dedicated to electronic signatures. The release states the administrators drew from several sources when drafting the proposed SOP including SEC releases, FINRA interpretive letters, SEC no action letters, and its own adopted SOP regarding Electronic Delivery of Franchise Disclosure Documents. The text of the proposal is copied verbatim below:
TEXT OF PROPOSED POLICY REGARDING USE OF ELECTRONIC OFFERING DOCUMENTS AND SUBSCRIPTION AGREEMENTS
A. An issuer of securities may deliver offering documents, including subscription agreements, over the Internet or by other electronic means, or in machine-readable media, provided:
1. the offering documents:
a. are prepared, updated, and delivered in a manner consistent with state and federal securities laws;
b. satisfy the formatting requirements applicable to printed documents, such as font size and typeface;
c. are delivered as a single, integrated document or file;
d. have no links to or from external documents or content; and
e. are delivered in a form that intrinsically enables the recipient to store, retrieve, and print the documents;
2. the issuer:
a. obtains informed consent from the investor or prospective investor to receive offering documents electronically;
b. ensures that the investor or prospective investor receives timely, adequate, and direct notice when an electronic document has been delivered;
c. employs safeguards to ensure that delivery occurred at or before the time required by law in relation to the time of sale; and
d. maintains evidence of delivery by keeping records of its electronic delivery of offering documents and makes those records available on demand by the Administrator.
B. Subscription agreements may be provided electronically for review and completion, provided:
1. the subscription process is administered in a manner that is equivalent to the administration of subscription agreements in paper form;
2. mechanisms are established to ensure a prospective investor scrolls through the document in its entirety prior to initialing and/or signing;
3. a single subscription agreement is used to subscribe a prospective investor in no more than one offering; and
4. in the event of discovery of a security breach at any time in any jurisdiction, the electronic subscription process will be suspended and notification will be made to the Administrator and all investors.
C. Delivery requires that the offering documents be conveyed to and received by the investor or prospective investor, or that the storage media in which the offering documents are stored be physically delivered to the investor or prospective investor in accordance with subsection (A)(1).
D. Each electronic document shall be preceded by or presented concurrently with the following notice: “Clarity of text in this document may be affected by the size of the screen on which it is displayed.”
E. Informed consent to receive offering documents electronically pursuant to (A)(2)(a) in this section shall be obtained in connection with each new offering. The investor may revoke this consent at any time.
F. Investment opportunities shall not be conditioned on participation in the electronic offering documents and subscription agreements initiative.
G. Investors or prospective investors who decline to participate in an electronic offering documents and subscription agreements initiative shall not be subjected to higher costs—other than the actual direct cost of printing, mailing, processing, and storing offering documents and subscription agreements—as a result of their lack of participation in the initiative, and no discount shall be given for participating in an electronic offering documents and subscription agreements initiative.
H. Entities participating in an electronic initiative shall maintain, and shall require underwriters, dealer-managers, placement agents, broker-dealers, and other selling agents to maintain, written policies and procedures covering the use of electronic offering documents and subscription agreements.
I. Entities and their contractors and agents having custody and possession of all documents, including subscription agreements, shall store them in a non-rewriteable and non-erasable format, and maintain secure offsite backups of such documents.
J. This section does not change or waive any other requirement of law concerning registration or presale disclosure of securities offerings.
TEXT OF PROPOSED POLICY REGARDING USE OF ELECTRONIC SIGNATURES
A. An issuer of securities may provide for the use of electronic signatures provided:
1. The process by which electronic signatures are obtained:
a. will be implemented in compliance with the Electronic Signatures in Global and National Commerce Act (“Federal E-Sign”) the Uniform Electronic Transactions Act, including an appropriate level of security and assurances of accuracy;
b. will employ an authentication process to establish signer credentials and security features that protect signed records from alteration; and
c. will provide for retention of electronically signed documents in compliance with applicable laws and regulations;
2. An investor or prospective investor shall expressly opt-in to the electronic signature initiative, and participation may be terminated at any time; and
3. Investment opportunities shall not be conditioned on participation in the electronic signature initiative.
B. Entities that participate in an electronic signature initiative shall maintain, and shall require underwriters, dealer-managers, placement agents, broker-dealers, and other selling agents to maintain, written policies and procedures covering the use of electronic signatures.
C. An election to participate in an electronic signature initiative pursuant to (A)(2) in this section shall be obtained in connection with each new offering.
Read the full release, including how to submit comments, here (starts automatic pdf download).