Follow up email to DNI Addendum

Following the publication of our Addendum to our DNI Handbook, we have received a number of queries concerning the use of legal opinions to prove legal reliability of electronic or digital systems used to produce digital negotiable instruments as required by the Electronic Trade Documents Act 2023 which is compatible with the UNCITRAL  Model Law on Electronic Transferable Records.

In ITFA’s view, it is now clear that the Act is not imposing a new or higher standard than existed prior to its implementation. Existing systems providers have, in many cases,  undergone extensive onboarding checks by financial institutions which are very rigorous.

For a system to be reliable it must:
(a) identify the document so that it can be distinguished from any copies,
(b) protect the document against unauthorised alteration,
(c) secure that it is not possible for more than one person to exercise control of the document at any one time,
(d) allow any person who is able to exercise control of the document to demonstrate that the person is able to do so, and
(e) secure that a transfer of the document has effect to deprive any person who was able to exercise control of the document immediately before the transfer of the ability to do so (unless the person is able to exercise control by virtue of being a transferee).

It should also be borne in mind that most of the indicative criteria set out in the Act which can be used to prove that these requirements are met are not concerned with essentially legal issues related to laws, rules or contracts but to the technical and technological aspects of the systems.

The Act does not require systems providers to provide legal opinions and these are not compulsory. Legal opinions are, however, a very good vehicle for bundling together the information that providers will need to demonstrate to the right standard to show reliability. In many cases, it will include a technical report by an appropriate expert on matters such as, for example, cybersecurity and this will normally be a key assumption in the legal opinion. Legal opinions will, of course, include opinions on purely legal issues as well but are unlikely to be in the form of classic banking legal opinions and will, and should draw, on third party expert input. With this limitation borne in mind, they can be a valuable tool as providers deal with this aspect of the Act.