EU Signs Off on E-Signature Initiative

European Union (EU) regulators cleared the way for the wide-scale implementation of electronic signature initiatives Wednesday, approving a global network set up by financial institutions worldwide to authenticate digital signatures and other aspects of e-commerce transactions.

Meeting in Brussels, Belgium, the European Commission gave the green light to Identrus, a U.S.-based company that was initially set up as a joint venture between eight of the largest U.S. and European banks.

Since its inception in 1999, Identrus — which seeks to tap the explosive growth projected for the online business-to-business (B2B) market — has incorporated an additional 13 equity owners.

According to the Commission, the approval will allow participating banks to operate as individual and competing certification authorities for the purposes of secure e-commerce transactions.

Principles, Principals

The EU panel said its clearance decision “illustrates the importance the Commission attaches to the development of competitive e-commerce-related markets.”

Regulators also noted that the latest resolution builds on an existing e-signatures directive adopted two years ago, which recognized that global-certification authority services over open networks are fundamental for the success of e-commerce in Europe.

Original participants in Identrus were ABN-AMRO, Bankers Trust, Bank of America, Barclays Bank, Bayerische Hypo- und Vereinsbank, Chase Manhattan Bank, Citibank and Deutsche Bank.

Competitive Concerns

After reviewing comments from a handful of third parties that raised questions about the potential for a monopoly, the Commission concluded that the Identrus system will not lead to any “appreciable restriction of competition.”

Said the panel: “The small share of any equity owner guarantees that no single company will have control over Identrus.”

The Commission said that the network does not have a foreclosure risk, because it requires all participating institutions to meet objective capital prerequisites and be in compliance with certain financial rating requirements.

In addition, the Commission said Identrus will be subject to regular competitive checks from systems being developed by financial industry ventures, postal authorities and telecommunications carriers, among others.

Joining In

Firms that participate in the network are free to compete with other members in the development of independent applications built upon the Identrus infrastructure, said the Commission, and are also free to join similar networks.

Participants can also set their own pricing structures for their authentication services customers. Such services include the authentication of the identity of transaction partners and electronic messages, as well as a contractual remedy against signature repudiation.

The Commission also noted that end-users are free to enlist the services of any member firm, and are therefore not bound to use their habitual banking institutions.

Domestic E-Signatures

A report released in June by the U.S. Federal Trade Commission (FTC) and the Department of Commerce found that the domestic Electronic Signature in Global & National Commerce Act (ESIGN), which was signed by former President Bill Clinton a year ago, appears to be “working satisfactorily” at this stage of the its implementation.

However, the report also said that not enough time has passed for consumers and businesses to experience the effects of the law or to determine if the implementation of ESIGN has led to an increase in online consumer deception and fraud.

ESIGN was enacted to facilitate the use of electronic records and signatures in Internet commerce by ensuring the validity and legal effect of contracts entered into electronically.