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The Growing Need for Electronic Seals (E-seals) and the Benefits to Businesses

Explore the benefits of e-seal technology and learn how they can improve both compliance and efficiency.

Rapid technological advancements have altered the landscape of financial transactions. Online markets and cryptocurrency exchanges have opened new avenues for money laundering. These platforms offer one thing that appeals to criminals — anonymity.

The ability to conceal one's identity and obscure the origin of cash flow poses significant challenges. Regulatory authorities tasked with combating money laundering must implement stricter oversight.

Research shows that illicit financial activities form roughly 3.2% of the GDP in the UK and the US. The UK National Crime Agency estimates that £90 billion is laundered through the country annually.

This issue shows no signs of abating anytime soon. However, the EU member states have enacted strict laws to impede such activities.

The adoption of digital signatures and electronic seals has enhanced document authentication and security. To streamline their use, the EU has introduced the Electronic Identification, Authentication and Trust Services (eIDAS) regulation. It aims to standardize the use of digital signatures and trust services.

Anti-Money Laundering Directives (AMLDs) have also been enacted. They require regulated entities to perform customer due diligence (CDD) before conducting business.

What are electronic seals?

An electronic seal (e-seal) is the digital counterpart of a traditional business seal. It verifies the integrity and origin of digital documents, financial records and transactions. Unlike e-signatures, e-seals can only be used by legal persons and entities.

The eIDAS framework highlights three e-sealing levels:

  • Simple: A simple e-seal is e-data linked to other e-data to verify the latter’s credibility.

  • Advanced: An advanced e-seal is uniquely linked to and can identify its creator. It is generated via e-seal creation data authorized for use by the legal person creating the seal. It is linked to the data it seals, so any subsequent changes are easily detected.

  • Qualified: Qualified e-seals are created using qualified seal creation devices (QSCDs). They require a qualified certificate from recognized trust service providers (TSPs).

A legal entity must be vetted and authenticated to generate an electronic seal. 

The legal framework and regulatory pressure

The eIDAS regulation has been in place since 2014. It sets the rules for electronic signatures, seals and other trust services across the EU. The goal is to facilitate secure electronic transactions, fostering trust and legal certainty.

The European Parliament has adopted a revised version of the regulation, eIDAS 2.0. It is expected to be enforced by the second quarter of 2024. The goal is to empower EU citizens to use trusted, secure digital identity solutions.

It also introduces the concept of Qualified TSPs (QTSPs). These agencies must follow stringent requirements for providing digital trust services. Here are the key provisions outlined:

  • Robust algorithms: QTSPs must use secure cryptographic techniques to ensure data integrity. These algorithms must meet recognized industry standards and be resilient to cryptographic attacks.

  • Secure system architecture: A secure system architecture should be maintained. This can prevent unauthorized access, data breaches and cyber-attacks.

  • Identification and accountability: Robust authentication mechanisms should be adopted. These practices facilitate the identification of entities involved in electronic transactions.

  • Audit trails: QTSPs must maintain detailed audit trails for each transaction. They must document the actions, involved parties and any relevant data changes.

The growing role of e-seals in ensuring compliance

E-seals play a pivotal role in ensuring compliance across diverse industries. Their advanced security features and real-time tracking capabilities facilitate compliance with regulatory requirements. Qualified e-seals comply with legal frameworks, such as eIDAS, and are issued by QTSPs. They include features for creating audit trails and recording all sealing activity. These practices are essential for demonstrating regulatory and legal compliance.

Spain and Portugal’s mandate on invoice sealing

In 2022, Spain introduced the “Create and Grow” Law, making e-invoicing mandatory between companies from 2024. Furthermore, under Spanish law 25/2013, e-invoices sent to public administrations must be signed with advanced electronic signatures or seals based on recognized certificates.

Since 2021, Portugal has mandated e-invoicing for large companies in B2G transactions. It also implemented a system to streamline invoice reporting and combat tax evasion. It is known as the Standard Audit File for Tax Purposes — Portuguese version (SAFT-PT). The country is set to mandate qualified digital signatures and e-seals for all electronic invoices from January 2025.

How can organizations use e-seals to future-proof their processes?

Investing in e-seal technology can help organizations adapt to the ever-evolving digital landscape. Here are several ways e-sealing can future-proof company operations:

Automating contract signing and management

E-sealing streamlines business operations by ensuring the integrity and authenticity of digital contracts. This significantly reduces the need for physical paperwork and facilitates faster contract execution.

Securing financial transactions

E-seals serve as evidence of origin and integrity for financial transactions. This information is essential for maintaining audit trails and resolving disputes. They enhance the security of financial documents, such as invoices and bank statements. This mitigates the risk of fraud and ensures compliance with financial regulations.

Protecting intellectual property (IP) rights

E-seals authenticate IP data, such as patents, designs and copyrighted content. They can prevent unauthorized use and tampering, thereby securing IP rights.

Streamlining government services

E-sealing accelerates public service delivery of government documents. By e-sealing permits, licenses and records, administrative burdens are minimized. It also fosters citizen trust in digital government services.

Enhancing supply chain transparency

E-seals secure and authenticate supply chain documents. These include shipping manifests, bills of lading and origin certificates. This improves traceability, reduces counterfeiting risk and ensures compliance with global trade regulations.

Ensuring EHR integrity

E-seals can protect the confidentiality and integrity of electronic health records (EHR). They secure and optimize patient data sharing among healthcare providers. This can significantly improve patient care and privacy.

Securing e-voting systems

E-seals can guarantee the integrity of the electronic voting process and its outcomes. This enhances public trust in electoral systems, instilling confidence in democratic processes.

Certifying educational credentials

Digital diplomas and certificates can be e-sealed for authentication and to prevent forgery. This facilitates a secure and efficient verification process for employers and educational institutions.

Authenticating software and firmware releases

E-seals ensure the integrity and authenticity of software releases and firmware updates. Offering protection against malware and unauthorized modifications enhances cybersecurity measures.

Digital archiving and preservation

E-sealing guarantees the long-term integrity and authenticity of archived digital documents and records. It preserves historical records, securing legal evidence and ensuring regulatory compliance.

The benefits of e-seals for businesses

In the current digital age, e-seals are indispensable for ensuring business resilience. Here are the key benefits of adopting e-seals:

Benefits of e-seals

Explanation

Enhanced security

E-seals offer robust encryption, making them resilient against counterfeiting and tampering. They ensure the integrity and authenticity of digital data.

Improved efficiency

They can automate bulk stamping tasks for invoices and standardized contracts.

Reduced risk of fraud

E-sealing employs cryptographic techniques to minimize the likelihood of fraudulent activities. This secures businesses against financial loss and reputational damage.

Reduced compliance risk

E-seals offer a secure and tamper-evident authentication method. This mitigates compliance risks and potential penalties.

Competitive advantage

Adopting e-seals demonstrates a firm commitment to data security and efficiency. It can give your business a competitive edge in the market.

Enhanced brand trust

E-seals ensure the reliability and authenticity of digital transactions. This level of assurance enhances trust with clients and partners.

Long-term cost savings

E-seals lead to significant cost savings over time. They can reduce manual load, minimize fraud and help avert compliance penalties.

Common challenges businesses face in implementing e-seals

Any new business process comes with its challenges. Implementing e-seals can add the following complications:

  • Integration with existing systems: Integrating e-seal solutions seamlessly into current IT infrastructures and business processes is a technical challenge. The solution to this is to ensure your e-seal solution can be integrated with your existing systems.

  • Security concerns: E-seal solutions must be secure from cyber threats. Businesses must also implement measures to maintain the integrity of sealed documents.

  • Training and change management: Adopting e-seals requires changes in document processing and authentication. Employees must be trained to understand new technologies and procedures associated with e-sealing.

  • Scalability and future-proofing: Your e-seal solution should scale with business growth. It must adapt to future needs and technological advances to avoid obsolescence.

  • Global and multi-language support: Multinational businesses must implement an adaptable e-seal solution. It should support multiple languages and comply with diverse legal requirements. This adds a layer of complexity to the implementation process.

FAQ

Can electronic seals be used on any type of document or file format?

Electronic seals can be applied to a wide range of document and file formats. These include PDFs, Word documents, images and even software binaries. They allow companies to maintain the credibility of digital assets across diverse content.

How do electronic seals differ from traditional physical seals?

Traditional physical seals are tangible marks used to signify authenticity and approval. Electronic seals are digital and use cryptographic techniques to secure documents. Electronic seals offer enhanced security features, including tamper-evidence and traceability. These are not possible with physical seals. Additionally, e-seals can be applied and verified more efficiently than their physical counterparts.

What is the legal status of electronic seals in international transactions?

The legal recognition of electronic seals varies by jurisdiction. But, it is steadily gaining acceptance globally. This especially includes the EU region which introduced the eIDAS regulation.

In international transactions, e-seal legality relies on mutual recognition. The electronic verification methods employed by the involved parties' countries should align. Organizations should consult legal experts to navigate these aspects in cross-border dealings.

Conclusion

Governments worldwide are embracing digitization to streamline invoice processing and combat fraud. In light of this global shift, businesses must adopt electronic seals as an integral part of their operations. By implementing e-sealing, businesses can strengthen the resilience of their digital systems and ensure regulatory compliance.

As more businesses seek reliable solutions to fortify their digital infrastructure, Entrust Signhost stands prepared to deliver. Our digital identification and electronic signature solutions ensure integrity and authenticity at every step. Try the platform for free today and see how it can empower your business.

References and further reading