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|Vu Thanh Minh - Lawyer, LNT & Partners|
The increase in digital commerce in the past two years has gone hand-in-hand with an increase in the use of cashless payments and online banking transactions. “E-financial transactions” are financial transactions that are implemented by electronic means.
Along with the permission of electronic know your customer (e-KYC) – which an anti-money laundering law introduced – e-financial transactions will be automatically performed through pre-established IT systems. Customers can therefore enjoy automatic services, from carrying out e-KYC and signing the contract to the execution and settlement of transactions. To sign an automatic e-transaction, the customer must have an authenticated electronic signature.
Currently, digital signatures are the only form of electronic signature that is as authenticated and sufficiently valid as an individual’s wet-ink signature, a signature of a representative, and the seal of an organisation. Therefore, they have been widely used by both organisations and individuals, but mostly by businesses for signing contracts, paying bills, and declaring taxes.
In the banking sector, commercial banks have accepted their customers’ use of digital signatures to open accounts or make payments via online banking services. The adoption of digital signatures in banking has offered not only customers but also banks a dramatic reduction in costs, paper, and time.
Obstacles and risks
Despite the advantages of digital signatures, there are some concerns regarding their use.
The first issue is the risk of invalidation. Under Decree No.130/2018/ND-CP, to be granted for use in financial e-contracts, customers must submit to the public certification authorities an application dossier for the issuance of digital certificates. This consists of an application form and auxiliaries, including a copy of an identity card or passport for individuals and, for organisations, a copy of the establishment decision or certificate of the business registration or investment certificate, together with an identity card or passport of the legal representative. All documents must be submitted, together with their originals, for the purpose of certification.
If the customer electronically signs an application and submits it online or signs the application by wet-ink signature and submits by post, the signatures and identification will not be verified and certified, and therefore their signature may be invalid.
To use digital signatures, customers need to provide physical documents. As a result, the application dossier that is submitted online may be invalid as well, which may lead to the invalidation of customers’ signatures, as well as the invalidation of the relevant transactions.
Therefore, to ensure the validity of digital signatures, customers should come to the office of the public certification authorities with both the copies and originals of the document and sign their application in ink. While digital signatures may be used entirely online, their creation must be offline to ensure validity.
This fact renders e-transactions unable to be fully automated, contrary to the expectations of financial institutions. In other words, to be able to activate automatic financial e-transactions, customers still have to perform a part of the transactions physically with a digital certification service provider and, in order to then perform e-transactions with financial institutions, customers must already have obtained their digital signature.
Currently, financial institutions, especially banks, are using one-time passwords (OTP) or multi-factor authentication for e-transactions, which has the same effect as a certified electronic signature. However, the validity of these forms of electronic signature is not guaranteed.
Finally, Vietnamese laws have been silent on the notarisation of e-contracts with digital signatures in e-transactions, especially for e-banking. According to Decree 35/2007/ND-CP, e-banking transactions will be applied to all transactions in the banking sector, but not to the issuance of drafts and other valuable papers. Under the laws, some contracts between a bank and its customer must be notarised, such as real estate mortgage contracts to secure loans.
However, there are no regulations on the notarisation of e-contracts that have been set out in any relevant legal documents. In practice, the use of digital signatures must adhere to the use of e-contracts. The lack of regulations will therefore prevent banks and their customers from using digital signatures.
In addition to the legal issues, the cost of digital signature solutions on the market is relatively high for individual customers and a big price to pay for small businesses. Digital signatures are usually used for simple transactions that are of negligible value. They are seldom used for important transactions, such as loans or high-value payments.
Nevertheless, digital signatures are one of the most effective tools for digital transformation in the banking sector and the entire economy. Therefore, to promote digital banking, the legal framework for digital signatures as well as e-contracts needs to be completed and fine-tuned.
Regulations allowing e-KYC for digital signatures issuance and guidance on technical measures to ensure authentication should be promulgated. To meet the criteria of digitalisation, digital signatures should be created and used entirely online and their validity guaranteed.
To do so, digital signatures should be issued based on e-KYC. Hence, it is recommended that article 23 of Decree No.130/2018/ND-CP should be amended so that the application dossier for a certified digital signature can be submitted entirely online and, at the same time, the requirement to submit original documents for comparison should be abolished.
To be consistent with article 23, article 25 should also supplement the provision specifying that digital signature certification service providers can use appropriate technical measures, methods and information sources to verify information.
In addition, article 25 should also set out obligations for digital signature certification providers to take responsibility during e-KYC procedures and guarantee that digital signatures are certified and the transactions constituted thereby are valid.
Furthermore, the regulation on the notarisation of contracts in the Law on Notarisation should be amended and supplemented to include e-contracts. To extend the use of digital signatures and e-contracts in banking transactions that must be notarised, such as real estate mortgages, the Law on Notarisation should include regulations on procedures to notarise e-contracts.
Having to sign transactions in wet ink is an obstacle to popularising the use of digital signatures. Instead of using digital signatures, many banks have used OTPs in combination with multiple elements, and biometric factors for banking transactions.
However, to some extent, the use of digital signatures does not meet the provisions of the law. Hence, increasing the relevance and strengthening the benefits of digital signatures for banking purposes is an important task in the strategy of digitalising the banking industry in Vietnam.