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.

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