How does Singapore law support electronic transactions?
4 minute read
Incorporating a company can be time consuming, costly and resource intensive. However, compliance and corporate secretarial services that are digitised streamline these laborious procedures. These digitised processes also reduce human error risk.
Singapore has embraced digital transformation by promoting electronic transactions and electronic record keeping. This article highlights Singapore’s current legal framework and identifies expected legislative developments that support electronic solutions.
1. Singapore’s digital economy
Singapore is the go-to destination for entrepreneurs to launch their business in Asia. As a tech-driven, commercially-oriented country, Singapore offers investors and entrepreneurs a supportive and stable economic environment. “Smart Nation” is a Smart City initiative encouraging the use of transformative technology to stimulate innovation and sustainability in Singapore. Most Singaporeans are digitally literate. Homes and offices are equipped with first-world digital infrastructure and the latest 5G innovation provides a strong digital foundation for business.
Singapore has received global recognition for development in many areas. As the world’s most competitive economy and smartest city, Singapore is well-placed to support progressive digital business practices.
Singapore’s global business reputation:
- Ranked as the most competitive economy in the world (World Economic Forum Global Competitiveness Report, 2019)
- Ranked smartest city in the world (IMD Smart City Index, 2019).
- #2 in the world for the ease of doing business (World Bank’s Doing Business Report, 2020)
- #3 in the world for innovation (Bloomberg Innovation Index, 2020)
2. Progressive laws
Singapore recognises the need to establish a strong digital governance culture. In 1998, it became the first country in the world to implement the UNCITRAL Model Law on Electronic Commerce by passing the Electronic Transactions Act (Chapter 88). It was also among the first to invoke the 2005 United Nations Convention on the Use of Electronic Communications in International Contracts. Action of this kind ensures that Singapore’s legal framework is aligned to internationally accepted rules which in turn increases legal predictability.
Singapore’s Electronic Transactions Act 2010 has repealed and re-enacted (with amendments) the Electronics Transactions Act (Chapter 88, 1999 Revised Edition). Further revisions to the Electronic Transactions Act (hereinafter “ETA”) were implemented in 2011.
The ETA provides a comprehensive commercial code for electronic transactions. The rights and obligations of transacting parties are clearly defined. Legal aspects of electronic contracts, such as the recognition and use of electronic records and digital signatures, are clearly addressed.
Moreover, the ETA mandates that “information shall not be denied legal effect, validity or enforceability solely on the ground that it is in the form of an electronic record” (ETA, section 6). This means that most documents, other than excluded documents (see excluded documents below), are legally recognised as the functional equivalent of a paper record.
The following documents are excluded from the scope of the ETA:
1. The creation or execution of a will;
2. Negotiable instruments, documents of title, bills of exchange, promissory notes,
consignment notes, bills of lading, warehouse receipts, etc.;
3. The creation, performance or enforcement of an indenture, a declaration of trust or
power of attorney, with the exception of implied, constructive and resulting trusts;
4. Any contract for the sale or other disposition of immovable property, or any interest in
immovable property; and
5. The conveyance of immovable property or the transfer of any interest in immovable
Source: ETA, First Schedule.
The ETA does not restrict contractual transactions except for the exclusions set out in the First Schedule of the ETA (see excluded documents section above). This means that a contract can generally be concluded by any means, electronic or otherwise, provided that the general requirements to establish contractual relations are satisfied (such as offer, acceptance etc).
Electronic signatures are most commonly executed by signing an electronic document. This may be done through software applications such as AdobeSign or Sleek Sign. The ETA gives full legal effect to electronic signatures. Under the ETA, any transaction which requires a signature can be legalised provided that (i) a reliable and appropriate method is used to identify the signatory, and (ii) the signatory’s intention is to carry out the obligations contained in the document. In practice, this means that secure legally-binding e-signatures can be validly placed on all resolutions.
Sleek has developed leading technological processes to streamline corporate secretarial procedures by automating “ready-to-sign” resolutions. These processes are monitored by a smart secretary workflow.
Sleek Resources and Guides
More information about electronic signatures can be found on our Sleek Resources and guides webpage:
Further information about setting up a company is also available in our Ultimate Guide on How To Register A Company In Singapore.
The ETA also provides for the development of procedures such as Public Key Infrastructure (“PKI”) to facilitate the secure electronic transfer of information. These protections are essential to protect confidential corporate information.
Additional procedures to simplify the use of electronic transmission by companies are set out in the Singapore Companies Act (Chapter 50). In 2016, the Companies Act was amended to liberalise the transmission of notices and documents. A new provision, section 387C, was implemented to allow the electronic transmission of documents such as notices, accounts, balance sheets, financial statements and reports if the company’s constitution provides for this mode of delivery. Alternatively, the company may obtain express consent from each shareholder to give effect to section 387C.
3. Anticipated regulatory reforms
On 27 June 2019, the Infocomm Media Development Authority (“IMDA”) launched a Public Consultation on the Review of the Electronic Transactions Act (the “Consultation”) to seek views on the review of the ETA. In reviewing the ETA, the IMDA collaborated closely with 14 Government Ministries and agencies (such as MOF, GovTech, MAS and SLA) in addition to consulting industry stakeholders. The Consultation was designed to respond to: (i) the demands generated by the rapidly developing digital economy and technology landscape; (ii) a recent United Nations General Assembly resolution recommending that UN member States consider adopting the UNICITRAL Model Law on Electronic Transferable Records (“MLETR”); and (iii) the goal of strengthening Singapore as a hub for electronic transactions.
The IMDA Consultation focusses on the following key amendments to the ETA:
1. enabling more transactions (including wills, property transactions, powers of attorney)
2. providing certainty on the use of new technologies such as Distributed Ledger
Technology (“DLT”), Smart Contracts and Biometrics; and
3. updating the certification authority to meet the latest international standards.
The emergence of new technologies such as Biometrics and Blockchain (a form of DLT) provide opportunities to further streamline the provision of corporate services. It is not clear how the current law applies to these new technologies. The IMDA has observed that Biometrics is unlikely to be understood as “a secure electronic procedure as defined under the ETA”. However, the preliminary review conducted by the IMDA concludes that the ETA is technology neutral and that no further amendments to the ETA are required.
The IMDA Consultation solicited views and comments on whether any further amendments to the ETA are necessary to facilitate the usage of biometric technology in electronic transactions. Views were also welcomed on “other possible technologies that enterprises or sectors may wish to deploy, but are unclear whether the ETA facilitates or prohibits these”. Such clarification of the legal framework will ensure that the adoption of such technologies is unhindered.
The initial submission deadline for the Consultation was 27 August 2019. However, in response to requests from industry players and interested parties the submission deadline was extended several times. By the close of the Consultation on 27 December 2019, the IMDA received submissions from 14 different stakeholders, largely representing the banking industry and law firms. The Law Society made 2 submissions. It is not known when the results of the Consultation will be announced. However, given that the Consultation was concluded towards the end of December 2019 – watch this space as it is likely that an announcement will be made shortly.
4. Looking at the future
Singapore is at the forefront of digital innovation. It has a vision of becoming an electronic commerce hub, where regional and international e-commerce transactions are processed. Future transformation through technology remains a top priority. To facilitate this vision, Singapore has established a world-class legal framework that facilitates electronic transactions.
The ETA provides for the legal recognition of electronic contracts and gives full effect to digital signatures and electronic records, establishing a regime that supports the digitisation of corporate services. The IMDA review and Consultation of the ETA is a much-needed step to ensure that digital transformation is supported by the most up-to-date and commercially relevant laws. The benefits of the anticipated clarifications or amendments to the legislative framework are far reaching and will widen emerging technology usage and enhance legal safeguards.
There is no doubt that the enhanced legal certainty of DLT, Smart Contracts and Biometrics usage will improve and enhance the digital transformation of future compliance and corporate secretary services.