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SEBI’S Informal Guidance on the use of electronic signatures

Finsec Law Advisors

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On May 20, 2021, in the informal guidance issued to Purnartha Investment Advisers Pvt. Ltd. (Purnartha), SEBI clarified the validity of procuring client’s signature by electronic means on the annexure setting out the fees and charges of the portfolio management account opening form.

The informal guidance was sought in relation to a circular issued on October 05, 2010 by SEBI to bring uniformity and transparency in the fees and charges levied by Portfolio Managers (PMs). Under the said circular, during the onboarding process PMs are required to mandatorily attach an annexure to the client agreement which lists the fees and charges payable. Further, PMs are also obligated to obtain the client’s signature and acknowledgement on the annexure signifying an understanding of the fee structure in their own handwriting. Purnartha, by way of an interpretative letter, sought clarity on whether, instead of a handwritten acknowledgement and signature, an electronic signature affixed in accordance with the provisions of the Information Technology Act, 2000 (IT Act) and an acknowledgement written electronically using fingers or a stylus pen on the touch screen of a personal computing device shall adequately satisfy the aforementioned requirement.

In its response, SEBI concurred with Purnartha’s view that permitting clients to affix electronic signature and electronically acknowledge their understanding of the fee structure set out in the annexure would be considered to be in compliance with the requirements of the said circular. In arriving at this conclusion, SEBI relied on two considerations - First, that S. 5 of the IT Act deems authentication by electronic signature affixed in a manner prescribed by the Central Government satisfactory of the condition of signature by any person; and Second, that the intent of the circular is to disclose the fee structure and charges payable and secure the client’s understanding of the same.

The recognition of electronic signatures and acknowledgments on personal computing devices as a valid means of meeting the requirements under the circular can be viewed as an attempt to balance the preference and convenience of investors with transparency and uniformity that the circular intended to introduce. The stance taken by SEBI is a positive step in its ongoing efforts to introduce safe and secure digital practices in the securities market.