In November 2020, InvestCEE LegalTech Consultancy in collaboration with Hungarian digital law firm SimpLEGAL issued a practical guide on e-signing in Hungary. e-Signature is a key aspect of digital transformation projects, yet we found that there is still lack of clarity as to the legally binding effect of e-signing tools in a given jurisdiction. In the report, we analyzed six locally available, electronic alternatives to traditional ink-on-paper signing and also briefly looked at international, borderless platform solutions. This blog post summarizes the key take-aways and provides free access to the full report. The Hungarian language version is available HERE.
The InvestCEE team collaborates closely with the SimpLEGAL team to provide assistance on adopting e-signature solutions and wider roll-out in organizations doing business in Hungary. This blog post aims to inspire legal and business teams in CEE to improve their digital operations with e-signature and electronic document management solutions.
What is an electronic signature? Which types are legally binding?
Anyone can create authentic official documents not only on paper, but also electronically — even free of charge, using widely available technologies in Hungary and beyond. Due to the continuous development of e-signature technologies, global digitization efforts, and the legal effects of the EU eIDAS (Electronic Identification, Authentication and Trust Services) regulation (“eIDAS Regulation”), individuals and businesses increasingly consider fully electronic management of their affairs as a viable alternative to paper-based solutions.
Just like a traditional handwritten signature, an e-signature is also specific to the signatory and is inseparably linked to the signed or authenticated electronic document. However, in the case of e-signatures the proofing requirements are met by digitally secure, cryptographic means: with an encoding or e-clause (also referred to as a digital stamp) embedded in the structure of the e-document and an attached e-certificate about the e–signature, verifiable by anyone.
While there are many e-signature solutions available locally and globally, these tools were not created to be equally relevant irrespective of context and jurisdiction. The eIDAS Regulation differentiates between three types of electronic signatures which are all legally valid but serve different purpose:
Electronic solutions to execute legally binding and officially acceptable e-documents in Hungary
The report includes a comparative chart and also provides in-depth analysis of the advantages, need-to-know aspects, operational requirements, and scope of use of six tech-assisted solutions that we identified to have legally binding effect currently recognized by the Hungarian authorities, as follows:
e-Document authentication enabled by the Government (“AVDH”)
QES linked to the e-identification card of Hungarian citizens (“e-ID”) enabled by the Government
Further e-signature solutions in international business context
While local laws (in Hungary and in other jurisdictions) will strictly define the legal and public administration context in which QES is required, trusted private and business relations generally allow for more flexibility among the parties when it comes to the security of e-signature and e-documentation. In fact, the optimal flow of private and business relations requires that individuals engage with more trust and mutually accept more relaxed legal and technical requirements than those applicable for QES. Hence standard e-signatures and AES may indeed have a widespread application in our everyday lives, in particular in a local business context or a multinational trade environment.
In addition to the e-signature solutions listed in the previous section of this report, each of which comply with the highest security standards in Hungary, individuals may as well access several other e-signature technologies. Under the eIDAS Regulation, most of these publicly available solutions qualify as standard e-signature or AES services, with the level of security set forth in each trust service provider’s own terms and conditions.
Given e-signatures do not exist in a vacuum, but imbedded in complex legal and business workflows, technology vendors increasingly offer platform environments with value-added features accessible to their subscribers. For example, in addition to its AES tool, Dealsign enables users to create or upload document templates, manage clause variations within templates, negotiate contracts real-time in a virtual environment, track changes by all parties in the activity log, and securely store and search agreements in a cloud-based repository. Technology vendors will often help connect with several existing applications and offer software integrations.
In the current times of change, when we are rapidly moving to a digital economy that increasingly relies on data and electronic workflows, using e-signatures is becoming a standard practice in everyday private and business matters. To manage the legal risks related to e-documentation and choose the adequate e-signature solution for local and international trade in Hungary, we advise as follows:
carefully evaluate on a case-by-case basis the actual context in which e-signature is to be applied;
make sure to understand the mandatory local laws that require for QES – remember, QES enables the strongest legal evidence when it comes to less (or possibly lack of) trust or even potential disputes between the parties and communication with the public authorities; and
where appropriate, consider using standard e-signatures and AES in business and private life use cases – compared to QES, these solutions offer flexibility and cost efficiency in exchange for lower levels of security.
Overall, each e-signature service provider’s goal is to create better customer and employee experiences, while enabling electronic administration faster, with less risk and at lower costs. Yet the adoption of e-signatures is not just a legal and information security issue. In fact, an essential aspect to consider is how technology changes the way we manage everyday matters, how legal and business teams perform work, and what risks and costs may be involved in digital transformation projects. Individuals and businesses need to place e-signature solutions into context and consider the operational and strategic impact they have. The impact of adopting e-signatures may be significant and therefore requires consultation on the key aspects before implementation, or wider roll-out in an organization.
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