Electronic signatures could become more popular if proposed EU rulebook reforms pass, according to a paper published by the Luxembourg House of Financial Technology. Delano spoke with Lhoft’s Jérôme Verony about digital IDs in the financial sector.
The European Commission has proposed changes to the EU’s 2018 regulation on electronic identification and trust services for electronic transactions (known as eIDAS). The refinements could make digital IDs more widely used across the bloc and, coupled with an existing Luxembourg archiving law, could create a “competitive edge” for firms based in the grand duchy. So argued Jérôme Verony, research and strategy associate at the Lhoft, in “Electronic signatures and digital trust services: Catalysts for financial sector evolution,” released in July.
Verony told Delano in an interview that the market for digital trust services is fragmented in most EU countries (an exception being Luxembourg, which is dominated by Luxtrust) and there is little cross-border competition. That is mainly because today, “electronic IDs are still based on IDs issued by national authorities” and “there’s a lack of compatibility between different public sector services across the European Union”.
However, “the pandemic showed that remote services” in the financial sector, such as opening new accounts and electronically signing contracts, have gained consumer acceptance. “This is not just a blip, it’s not just something that came due to the pandemic and then it’s going back to normal. This is something that will be sustained. People have become used to doing remote services in the financial sector. And so companies really need to adapt to this in the long term,” he said.
The paper outlined the major legal and technological questions, and provided a “curated list of trusted service providers” that financial firms can screen themselves. Verony said there are no obstacles to tapping vendors cross-border, but some are stronger in certain categories than others. If the commission’s proposal passes, EU citizens will have an “electronic data identity wallet” which can be used to sign all sorts of official documents and access accounts. While “that’s still a few years off,” he noted, “our recommendation to the industry would really be ‘don’t wait this out’.” The legal and technical frameworks will take time to develop, but “meanwhile, the customer is there. So, you need to work with the tools that you have. You can’t wait for the ‘perfect solution’ to emerge five years from now and do nothing in the meanwhile.”
Financial institutions have already been gaining time and money, quite often by eliminating errors that occur when paper documents are manually entered into electronic systems. Going fully digital “provides your customers with an experience that they actually like better”.
Consumers may be worried about security and privacy, and “they’re very valid concerns.” But he reckoned that “there’s a very robust legal framework” and technical standards in the EU. “It’s not something that anybody takes lightly.” A major data breach would cost a “company a lot of revenue, especially in a sector like financial services. So, if a major retail bank were to lose a lot of data or have their customers’ IDs breached, that would be almost like a death knell for that company.” Consumers should be reassured by “the fact that there’s a mutual interest there.”
Plus, Verony posited, paper-based manual processes are not necessarily more reliable. “You have a lot of weak points in that chain. And as you move towards a more integrated system internally, that actually strengthens your cybersecurity.”