PROPOSED ELECTRONIC TRANSACTIONS REGULATIONS IN ADGM
In a quest to regulate electronic dealings in today’s technological environment, on 15 September 2020, the Financial Services Regulatory Authority (FSRA), the financial services regulator in Abu Dhabi Global Markets (ADGM), issued a Consultation Paper on Electronic Transactions Regulations.
The Paper proposes to introduce regulations to facilitate electronic transactions, electronic records and electronic signatures. The regulations aim to:
- bring ADGM’s regulatory framework more in line with international best practice; and
- provide consistency and greater flexibility in the use of electronic documents, retaining electronic records and reliance on electronic signatures.
TO WHOM DOES IT APPLY?
- entities and investors in ADGM;
- those intending to establish a presence, or carry on business in ADGM; and
- professional advisors.
Please note that the deadline for providing comments on this proposal expires on 14 October 2020.
WHAT ARE THE REGULATORY APPROACHES FOR DEALING WITH SIGNATURE AND AUTHENTICATION TECHNOLOGIES?
There are three main regulatory approaches to dealing with signature and authentication technologies on a global and domestic (UAE) level as detailed in the table below:
ADGM have adopted “the minimalist approach” as regulators believe it is better suited for its free zone for the following reasons:
- the minimalist approach is in line with the Model Law, which advises against prescribing certain technologies, given that technology is always evolving;
- ADGM currently adopts a common law jurisdictional rule with a principle-based legislation and regulatory regime;
- the minimalist approach is said to be advantageous because its function is similar to handwritten signatures.
WHY ARE SUCH REGULATIONS REQUIRED?
ADGM regularly receives enquiries relating to the legal position on electronic contracts and more specifically the validity of electronic signatures. It is clear that ADGM’s current legal framework provides limited guidance on the matter and therefore it is deemed necessary to adopt specific legislation relating to electronic dealings.
PROPOSED RULES AROUND ELECTRONIC SIGNATURES
The Consultation Paper highlights that a more general provision in relation to the use of electronic signatures in any document used in ADGM would help assist stakeholders in accordance with the Model Law.
The proposed regulations are technology neutral in relation to use of any particular type of technology. An electronic signature will be deemed valid if the signatory is identified and it indicates the signatory’s intention to sign the document. The parties shall be responsible to determine the level of security that it deems adequate for their communication and transactions.
Thus, under the proposed regulations where an Enactment requires the signature of a person, or provides for certain consequences if a document or a Record is not signed, an electronic signature is deemed sufficient unless expressly stated otherwise.
The new proposed regulations will be more aligned with international best practice – and similar to other countries the proposed regulations are based on the Model Law.
WHAT IS THE MODEL LAW?
The Model Law consists of three instruments set out by the United Nations Commission on International Trade Law. This includes:
- the Model Law on Electronic Commerce (1996);
- the Model Law on Electronic Signatures (2001); and
- the Convention on the Use of Electronic Communications in International Contracts (2005).
ADGM seeks to incorporate the above instruments into the new legal framework. However, rather than taking a general approach, the regulations will be tailored to its jurisdiction.
PROPOSED REGULATIONS REGARDING ELECTRONIC CONTRACTS
Under the Model Law, the medium used to form a contract should not determine whether or not the agreement is legally binding. This is a fundamental principle. As such, under the Electronic Contracts section of the proposed regulations:
- an offer and acceptance may be expressed in an electronic communication;
- a contract is capable of being formed via automated message systems; and
- an electronic record of a contract is deemed legally valid and enforceable.
PROPOSED REGULATIONS REGARDING ELECTRONIC RECORDS
According to the Model Law electronic records can provide the same level of security as paper records and actually quite often it can provide a higher degree of reliability and speed so long as the necessary legal and technical requirements are met.
ADGM have taken the same approach and have proposed that:
- Information in the form of an Electronic Record has legal effect, validity or enforceability as if it were in writing; and
- where a provision in an Enactment requires Information to be in writing, or provides for certain consequences if Information is not in writing, an Electronic Record satisfies that provision if it preserves a record of the Information and can be reproduced in tangible form.
Please note that Information includes data, text, images, sounds, codes, computer programs, software, databases, symbols or processes.
ARE THERE ANY EXCLUSIONS INCORPORATED IN THE PROPOSED REGULATIONS?
Yes, ADGM have taken into consideration the exclusions under the Model Law and have modified it in order to meet the needs of ADGM entities. As you will see, the exclusions primarily relate to transactions that require secondary witnessing and attestations under applicable law. This includes:
- the creation, performance or enforcement of a power of attorney;
- the creation, performance or enforcement of a declaration of a trust (with the exception of implied, constructive and resulting trusts) and any provision in the Trusts (Special Provisions) Regulations 2016 and Foundations Regulations 2017 requiring information to be written or in writing;
- the creation and execution of wills, codicils or testamentary trusts;
- transactions involving the sale, purchase, lease (for a term of more than 10 years) and other disposition of immovable property and the registration of other rights relating to immovable property;
- any document to be notarised before the notary public; and
- negotiable instruments, documents of title, bills of exchange, promissory notes, consignment notes, bills of lading, warehouse receipts or any transferable document or instrument that entitles the bearer or beneficiary to claim the delivery of goods or the payment of a sum of money.
WHAT IS MEANT BY THE “IN WRITING” REQUIREMENT?
ADGM proposes to include the use of electronic modes of representing or reproducing words within the definition of “in writing”.
The proposed framework is a step forward in explicitly acknowledging the need for clarity and guidance when it comes to electronic transactions, records and signatures. The new regime is in line with international best practice and is much needed considering the impact of COVID-19, flexibility required in the execution of transactions and the forwarding of evolving use of technology as a tool in Regtech.
Overall, the proposed regulations seem to strike a good balance between ensuring security and providing ease for e-commerce and electronic dealings with and within the ADGM community. This will ultimately further assist stakeholders in today’s evolving digital world.
Partner & Head – Regulatory & Compliance Services
Senior Manager – Regulatory & Compliance Services