Digitising documents makes it easier to manage guarantees efficiently, while ensuring legal certainty. The advantages of centralized guarantee management are manifold.
The decentralised management of guarantees in paper form is still common practice in many companies. The lack of centralised guarantee management and systematic, secure storage methods not only increases the risk of losing or damaging guarantee documents; it is also inherently open to the risk of forgery, due to the fact that in decentralised management systems, the authenticity of guarantees is not usually checked and verified by competent personnel. Moreover, if the content of guarantees is not adequately checked, they may not fulfil their security purpose or may unintentionally become forfeit. All of these factors can have a detrimental effect on the success of a business. This situation can be remedied by creating a centralised, digital guarantee management system, which will provide a more professional means of allocating counterparty risks.
Centralised digital management
Before an efficient, digital guarantee management system can be introduced, a business-wide process must be set up to collect all incoming guarantees in a central location. Once creditors have deposited their guarantees in a central electronic database, they can access their documents at any time. This reduces the cost and effort involved in looking for the physical paperwork and allows guarantees to be sent to third parties in seconds. It also improves cooperation between the departments involved in the guarantee transaction and the banks. Thanks to modern encryption technology and authentication procedures, guarantee documents can be protected from unauthorised access. These also ensure audit-compliant archiving, which is particularly important in the event of legal disputes. The ability to complete all steps digitally also reduces the risk of documents being lost or manipulated.
Effectiveness of digital guarantees in commercial transactions
It is a common misconception that German law requires guarantees to be issued in paper form and signed. That is because, for a guarantee contract to be valid under § 766, sub-paragraph 1 BGB (German Civil Code), the guarantee declaration must be issued in writing; sub-paragraph 2 of the BGB expressly excludes the possibility of issuing the guarantee declaration in electronic form. However, the German Commercial Code defines an exception to that rule: the formal requirements of § 766 sub-paragraph 1 and 2 of the German Civil Code do not apply if the guarantee is a commercial transaction on the part of the guarantor (§ 350 of the HGB (German Commercial Code)). Nor are guarantees subject to any specific rules under German law. When drafting the BGB and HGB, the legislature restricted itself to drawing up separate rules for guarantee contracts only, which means that guarantees can certainly also be issued and sent electronically.
By centralising and digitising guarantee management, businesses and banks alike can optimise their processes, reduce administrative costs and benefit from improved legal certainty. The digital transformation of guarantee transactions therefore opens up new opportunities and improves competitiveness.
Featured article by Ludger Janßen, Managing Director and Co-CEO, Digital Vault Services GmbH and Christian Voitl, Vice President, Transaction Services Products, ING Germany.
Der Treasurer 03/23, 22.09.2023