The Validity of eSignatures in Fund Subscriptions According to eIDAS 2.0

Documents created on a computer are printed, signed by hand, and scanned again. This not only raises costs and wastes resources but also impedes digitalization in the organization as a whole.

This was a point raised by the Bundesdruckerei when explaining the purpose of the eIDAS regulation.

For private market fund subscriptions, the reliance on manual processes is increasingly viewed as a liability and a frustration. Fund managers are dealing with an industry where compliance with strict regulations is critical.

This is particularly true in the European Union, where KYC and AML requirements, enforced by the 4th and 5th AML Directives, demand rigorous identity verification and transaction monitoring. 

These regulations are designed to ensure a secure financial environment, but they also add layers of complexity to the subscription process.

One area where perceptions are changing is in the adoption of electronic signatures. Many in the industry have traditionally viewed wet-ink signatures as the ultimate proof of authenticity. However, the introduction of the eIDAS regulation in 2016 has started to shift this mindset. 

eIDAS legally validates electronic signatures across the EU and provides a robust framework that ensures they are as binding as traditional signatures. 

Despite initial skepticism, electronic signatures have proven to be highly secure under eIDAS. The regulation ensures that electronic signatures are uniquely linked to the signatory, meaning that each signature is created with specific data that identifies and authenticates the individual signing the document.

This unique link is established through advanced cryptographic techniques, such as the use of private keys in a public key infrastructure (PKI), which guarantees that only the intended signatory can create the signature. 

eIDAS not only makes electronic signatures legally binding across the EU but also facilitates cross-border transactions, which are common in private market investments. 

The adoption of electronic signatures has been particularly strong in the Banking, Financial Services, and Insurance sectors (BFSI), which accounted for 40% of the eSignature market in Europe in 2023. 

This adoption in highly regulated sectors proves the reliability and security of electronic signatures, making them an increasingly attractive option for funds that must balance compliance with operational efficiency.

Introduction of eIDAS 2.0 and Its Impact on eSignatures in Fund Subscriptions

On April 30, 2024, the European Council approved an important amendment to the eIDAS Regulation, leading to the implementation of Regulation (EU) 1183/2024, also known as eIDAS 2.0. 

This update marks a significant shift towards harmonizing digital identity and trust services across the European Union, addressing many of the challenges identified in the original regulation.

As Christoph Busch, a legal expert at the University of Osnabrück, notes, In order to remedy the weaknesses of eIDAS 1.0, in June 2021, the European Commission published a proposal to revise the eIDAS Regulation.

The proposal seeks to address the shortcomings of the existing regulatory framework and extend its benefits to a broader range of use cases in the private sector.

Christoph Busch

Professor & Legal Expert at the University of Osnabrück

One of the most impactful changes introduced by eIDAS 2.0 is the European Digital Identity Wallet (EUDI Wallet). This wallet is designed to streamline electronic identification and authentication across borders, making it easier for fund managers and investors to verify identities and sign documents using qualified electronic signatures. 

The EUDI Wallet could serve as a means for the adoption of digital services by providing a unified approach to identity management, which is crucial for cross-border transactions. - industry expert Alejandro Leal. 

This development is set to enhance the efficiency and security of fund subscriptions, particularly in cross-border contexts. eIDAS 2.0 also introduces new types of trust services that directly impact how funds manage electronic documents and data. 

These include the Electronic Ledger Service, which ensures the integrity and accuracy of data records—critical for maintaining transparent and auditable fund operations. Additionally, the Electronic Archiving Service offers robust management of electronic documents, ensuring their durability and integrity over time. 

As the regulation evolves, it also imposes stricter security standards for these trust services, further reducing the risk of fraud and identity theft and thus boosting confidence in digital transactions across the EU.

Misconceptions About Electronic Signatures in The Private Market 

Despite the growing adoption of electronic signatures in the private market, several misconceptions still exist that can hinder their broader acceptance. 

These misconceptions often stem from a lack of understanding about the legal framework, security features, and overall efficacy of electronic signatures, particularly in sectors that demand high levels of security and compliance, such as private equity and venture capital.

Myth 1: Electronic Signatures Are Less Secure Than Wet-Ink Signatures

A common misconception is that electronic signatures are less secure than traditional wet-ink signatures. 

In reality, electronic signatures, especially those validated under regulations like eIDAS 2.0, offer enhanced security measures such as: 

• Advanced encryption
• Audit trails 
• Biometric authentication 

This makes eSignatures more secure than a handwritten one. As emphasized in the eIDAS 2.0 framework, 

eIDAS 2.0 introduces stricter security standards for trust services, reducing the risk of fraud and identity theft.

This level of security is fundamental in the private market, where the integrity of signed documents is paramount.

Myth 2: Electronic Signatures Cannot Be Used for Complex Legal Agreements

Another thought that fund managers may have is that electronic signatures are not suitable for complex legal agreements, particularly in the private market, where transactions often involve multiple parties and intricate contractual obligations. However, this is not the case. 

The eIDAS regulation specifically accommodates complex agreements by allowing for the use of advanced and qualified electronic signatures (QES), which are legally binding and offer high levels of assurance. 

These signatures are supported by robust identity verification processes, making them suitable for even the most complex and high-stakes agreements. 

Additionally, the enhanced trust services introduced in eIDAS 2.0, such as electronic ledgers and archives, provide further support for managing complex transactions securely and efficiently.

Myth 3: Electronic Signatures Are Not Accepted by All Jurisdictions

There is also a misconception that electronic signatures may not be accepted in all jurisdictions, particularly in cross-border transactions. 

While this might have been a valid concern in the past, the eIDAS regulation has established a harmonized legal framework across the European Union, ensuring that electronic signatures are recognized and enforceable in all member states. 

This means that fund managers can confidently use electronic signatures in transactions involving multiple jurisdictions within the EU. 

Furthermore, eIDAS 2.0 strengthens this framework by introducing more stringent requirements for trust services and ensuring interoperability across member states, making cross-border transactions even more seamless​. 

Advanced vs Qualified Electronic Signatures 

You might have heard the terms Advanced Electronic Signature (AES) and Qualified Electronic Signature (QES) and wondered how they apply to your fund operations. 

Understanding the differences between these two types of electronic signatures is crucial for ensuring that your transactions are secure, legally compliant, and tailored to the level of assurance you need.

Advanced Electronic Signatures 

AES offers high security and legal validity, making them suitable for a wide range of transactions. For an AES to be compliant under the eIDAS regulation, it must meet the following criteria:

• Unique Link to the Signatory - The signature must be uniquely linked to the signatory, ensuring it can be traced back to the correct individual.
• Identification of the Signatory - The signatory must be identifiable through the signature.
• Under the Sole Control of the Signatory - The signing process must be controlled exclusively by the signatory, preventing unauthorized use.
• Integrity of the Signed Data - The signature must be linked to the signed data so that any alterations made after the signing are detectable.​

AES is commonly used in sectors such as finance and healthcare, where security is essential, but transactions may not necessarily require the highest level of legal assurance.

Qualified Electronic Signatures 

QES represents the gold standard in electronic signing, offering the highest security and legal validity. 

A QES is essentially an advanced electronic signature created using a qualified signature creation device (QSCD) and supported by a qualified certificate issued by a trust service provider accredited under eIDAS.

Key features of a QES include:

• Qualified Signature Creation Device (QSCD): QES must be created using a device certified to provide the highest level of security, such as a smart card or hardware security module (HSM).
• Qualified Certificate: QES must be supported by a qualified certificate issued by a qualified trust service provider (QTSP), which confirms the signatory's identity.

Legal Equivalence to Handwritten Signatures: QES is the only type of electronic signature legally equivalent to a handwritten signature across all EU member states, making it particularly important for high-stakes transactions.

Key Differences Between AES and QES

When it comes to fund subscriptions, especially in the private market, the type of electronic signature you need largely depends on the level of security and legal assurance required for the transaction. 

For most fund subscription agreements, which involve high-value transactions and require robust legal enforceability, a QES is often the best choice.  

How to Use Electronic Signatures in Fund Subscriptions

Our comprehensive digital platform, Vestlane, is tailored to meet the needs of fund managers and investors by streamlining fund operations while ensuring compliance and security. 

Over 220 funds and more than 6,000 Limited Partners (LPs) use Vestlane. We provide an all-in-one solution designed for efficiency and scalability. 

For example, with our investor wallet, you can reduce fund subscriptions from months to a few days through automated fund closings, allowing you to focus on value-driven tasks that help you raise capital faster.

UVC Partners, an early stage venture capital firm that uses Vestlane for investor onboarding and fund subscriptions, found that technology has been a game-changer their operations.

Vestlane made the onboarding process as simple as opening a bank account in 2024. It was a relief not to have to deal with endless paperwork.

Alexander Huber

CFO at UVC Partners

When it comes to eSignatures, Vestlane integrates seamlessly with DocuSign and IDNow to offer a simple and secure electronic signature process. 

Here’s how eSignatures with Vestlane work:

• Proceed via DocuSign: Investors are guided through a fast and easy signature process. Our platform automatically integrates with DocuSign, allowing investors to sign documents with just a few clicks. This step is straightforward, reducing the time needed to finalize agreements.
• Proceed via IDNow: For those requiring a higher level of security, Vestlane offers the option to proceed via IDNow. This includes identification through VideoIdent and using a qualified electronic signature.

This process ensures that the identification and signing are completed securely and in compliance with the highest legal standards.

Multiple Capital, another fund using Vestlane, expressed how adopting a digital platform reduced their fund subscription process from months to weeks. 

We had two closings with the Luxembourg Fund, each completed within three to four weeks, including sending out links and collecting signatures. Ertan Can, Founder of Multiple Capital 

Beyond providing a simpler signing process, Vestlane enhances the entire investor onboarding experience and automates compliance checks, allowing funds to focus on strategic initiatives rather than administrative tasks. 

If you want to see how Vestlane can help your fund, book a demo with us and get a quote in 30 minutes.