• United States




FINRA Rule 4512: U.S. SEC approves electronic signatures

May 06, 20193 mins

The updated FINRA Rule 4512(a)(3) is now in effect, striking a blow against outdated regulations.

Hands write on paper with pen.
Credit: Gajus / Getty Images

As banks and other financial institutions continue to modernize their business processes to reduce operating expenses and enhance the customer experience as part of an overarching digital transformation, outdated regulations have caused some approaches to hit a wall. 

Updating the FINRA Rule 4512 for e-signatures

In the brokerage industry, Financial Industry Regulatory Authority (FINRA) Rule 4512(a)(3) (Customer Account Information) is an example. As it pertains to discretionary accounts, it requires member firms to obtain the “wet” signature of each named, natural person authorized to exercise discretion in an account. 

Members complained that this antiquated requirement raises operational costs without providing any meaningful security protections for investors. Further, the competitive playing field has been tipped in favor of investment advisers who have been able to capture customers’ signatures electronically for some time, likely as far back as the enactment of the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures in Global and National Commerce Act (ESIGN Act). (Disclosure: My employer, OneSpan, provides electronic signature solutions and I serve on the Board of Directors of the Electronic Signature and Records Association.)

As one might imagine, customers would download the account forms from the web to comply, or have them sent by email. They would then print the forms, sign manually, and scan them to return them by email. In cases where the customer mails the form back, the firm would then have to scan it for electronic archiving.

To address the concerns of member firms, in November 2018, FINRA filed a proposed change to Rule 4512(a)(3) with the U.S. Securities and Exchange Commission (SEC) to permit e-signatures for those account forms forms, streamlining what was a multi-step, onerous process for the customer and time consuming for the firm discretionary accounts. On April 16, 2019, the SEC approved the rule change. No doubt, this approval generated many happy smiles on Wall Street.

The updated FINRA Rule 4512(a)(3) takes effect today, May 6, 2019.

Other regulations beyond the FINRA Rule 4512

In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act became law. The law removed many of the regulations imposed on banks in the wake of the Great Recession. It also bears particular relevance to mobile banking and e-signatures.

The Act includes a provision called the MOBILE Act (Making Online Banking Initiation Legal and Easy). This provision makes it easier for financial institutions to onboard new customers remotely without the need for the customer to travel to a branch to complete the process.

Within the law, a financial institution is defined as:

  • An insured depository institution
  • An insured credit union
  • Any affiliate of an insured depository institution or insured credit union

Banks can now create an entirely digital onboarding process by verifying a scan or digital copy of a new customer’s government-issued identification, such as a driver’s license. While some states already allowed banks to accept a scanned driver’s license as proof of identity, the MOBILE Act makes it legal at the national level. From there, the customer can complete the necessary forms and enter data online or via mobile and even sign documents using an electronic signature to finalize the process.

The key word here is “bank.” The MOBILE Act does not apply to brokerages. With the FINRA Rule 4512 hurdle cleared, it remains to be seen if new legislation is introduced to enable brokerages to do the same and further advance their digital transformation. 


Michael Magrath is responsible for aligning OneSpan’s solution roadmap with standards and regulatory requirements globally.

He is Co-Chair of the FIDO Alliance’s Government Deployment Working Group and is on the Board of Directors of the Electronic Signature and Records Association (ESRA). He also served as a member of the Board of Directors for the Identity Ecosystem Steering Group’s (IDESG) and was Chair of the Health Information Management Systems Society (HIMSS) Identity Management Task Force.

Prior to OneSpan, he served as Director for Identity Solutions for DrFirst, a leading U.S. health IT solution provider, and focused on streamlining and securing the identity management process for healthcare providers nationwide and increasing the adoption of electronically prescribing controlled substances (EPCS).

Before DrFirst, Mike lead Gemalto’s market and business development activities in the U.S. government and healthcare markets and was a contributing member of the Health Record Banking Alliance, WEDI, HIMSS, the Medical Identity Fraud Alliance and the Secure ID Coalition.

He served as Chairman of the Secure Technology Alliance’s (formerly the Smart Card Alliance) Health & Human Services Council from 2010-2014 where he led initiatives to stimulate the understanding, adoption, use and widespread application of smart card technology in healthcare. He served as an advisor to the American Medical Association supporting a Center for Disease Control grant to develop and test the viability of a "Health Security Card" to identify and expeditiously treat victims in the event of a disaster.

Mike holds a Bachelor’s Degree in Psychology from the University of Massachusetts at Amherst. He is married with three children and resides in Northern Virginia.

More from this author