18 azbankers.org The COVID-19 pandemic has accelerated the digitization of many financial operations, and this includes the increasing use of electronic promissory notes. As we work to develop new products and services to meet the evolving needs of FHLBank San Francisco members and their customers, we’re pleased to report that as of Mar. 31, 2021, we began accepting eNotes as pledged collateral from our member financial institutions. For those financial institutions —whether FHLBank members or not — that may be just beginning to explore the adoption of eNotes, I’ll begin with a brief overview. In simple terms, an eNote is a promissory note that is created, signed, and stored electronically according to the standards for transferrable records established under the Electronic Signatures in Global and National Commerce Act (ESIGN Act) and Uniform Electronic Transactions Act (UETA), collectively known as the eSignature Laws. To be considered a transferrable record, an eNote must: 1. Have the same terms and conditions as a wet-signed paper promissory note would have under Article 3 of the Uniform Commercial Code; 2. Be electronically signed; 3. Reliably establish the identity of the entity/person who has the authority to control the eNote in a sale or pledge as collateral (control of an eNote is established if the eNote is created, stored and assigned in a manner that ensures that a single authoritative copy of the eNote exists); and 4. Be signed using an eSignature process and secured by a tamper-evident signature and Version 1.02 MISMO Category 1 SMART Doc®. Not all electronic notes qualify as eNotes, as defined by the eSignature Laws and the government-sponsored enterprises (GSEs) — Fannie Mae, Freddie Mac, and the FHLBanks. Examples of electronic notes that are not eNotes include the following: • A scanned copy of a paper note • A situation in which the borrower did not consent to an eNote upfront • An electronically signed note without a single authoritative copy (that is, copies are created that are not easily differentiated from the original) • An electronically signed note that is not stored in an eVault or not listed on an eRegistry such as the MERS® eRegistry • An electronically signed note that is not a SMART Doc We’ve also seen some confusion regarding the difference between eNotes and eSignatures. Documents, including promissory notes, with eSignatures, are documents signed electronically, per the ESIGN Act. eNotes, in contrast, Are You Leveraging the Many Benefits of eNotes? By Diane Jester, Managing Director, Credit & Collateral Risk Management, FHLBank San Francisco
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