Data for Breakfast Around the World
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With business data today moving rapidly across the globe thanks to the cloud, it has become more important than ever to know who controls that data, and whose laws it is subject to. Global organizations must navigate through a complex maze of data protection regulations that can vary from one region to the next—from the European Union’s strict General Data Protection Regulation (GDPR) requirements to data privacy laws such as California’s California Consumer Privacy Act (CCPA).
For any organization operating in the cloud, collecting and processing customer information, or operating internationally, data sovereignty has emerged as a critical business consideration. Understanding data sovereignty is essential to avoid hefty fines and penalties, preserve customer trust and ensure business continuity.
Data sovereignty is the principle that digital information is subject to the laws and governance structures of the country or region where it is collected or stored. This means that data is governed by the legal framework of where it is physically stored, even if the organization that owns the data is located elsewhere.
The concept of data sovereignty has important implications for how organizations think of data protection and regulatory compliance. When an organization stores data in a specific geographic location, it must abide by that country or region’s data laws and regulations. Data sovereignty requirements are chiefly concerned with local laws concerning data privacy and data security, such as protecting sensitive data from breaches and controlling who has access to what data.
Data sovereignty works by ensuring that data is governed by the laws of the country or region where it is collected, stored or processed. There is typically a legal relationship between where data is located and the laws in that jurisdiction governing how data be managed.
To comply with data sovereignty requirements, organizations must carefully document where their data is stored and how it flows across borders, since overlapping regulations can create complex obligations.
Data sovereignty compliance typically involves storing data in local data centers, enforcing residency or localization requirements for any sensitive data, and using sovereign cloud solutions designed to restrict where data is held and who can access it.
These three concepts are related but they are not interchangeable. Let’s examine their different legal and operational implications:
Data sovereignty is the concept that data is subject to the laws and regulations of the country or region where it is located. Data sovereignty does not mean that data must remain in one specific location; however, it does mean that organizations must abide by the laws of each jurisdiction where that data is physically located.
Data residency is chiefly a voluntary business decision about where an organization plans to physically store its data. Organizations may choose to store data in a specific region for a number of reasons, such as to simplify compliance or for performance considerations. Wherever an organization decides to store its data, it is then subject to the applicable laws of that territory.
Data localization is a concept often used interchangeably with data residency; however, there is an important distinction. Data localization refers to scenarios in which specific governments require that data collected within their borders remain there to ensure compliance with their local laws or regulations. Unlike data residency, data localization is not optional for organizations—they must comply. Examples of countries that have developed strict data localization laws include Russia, China and India.
The importance of data sovereignty is closely related to the growth of cloud computing environments, which have become integral to the overall growth strategies of many modern organizations. Cloud environments are now critical business infrastructure as more and more enterprise applications move to the cloud.
Thanks to the advent of cloud computing, the way organizations store and manage data has changed significantly over the past two decades. Data is no longer solely stored on local drives or on-premises servers, and with the widespread distribution of data across various cloud environments, organizations must carefully manage security and compliance to mitigate the risk of data breaches or data privacy violations.
The concept of data sovereignty has emerged alongside the establishment of various data protection laws and regulatory frameworks, such as the EU’s GDPR. Organizations that fail to comply with these laws when applicable can face serious legal issues, including severe financial penalties. For example, fines accrued under GDPR could involve a percentage of an organization’s global revenue.
Because controlling access to sensitive data is a key element of data sovereignty—who has access to what data?—it plays an important role in protecting organizations from the reputational damage and eroded customer trust that can result from a serious data breach. In addition, there is the business continuity consideration. Data sovereignty strategies require organizations to think carefully about where their data lives and which regulations they must follow, making it easier to access and recover the data in the event of an emergency.
Data sovereignty presents a number of challenges for organizations:
When an organization generates data in one country or region but stores or processes it somewhere else, it must be sure to follow the legal requirements in both jurisdictions. This becomes a much bigger challenge for companies operating globally, and potentially facing dozens of different legal frameworks with which they must comply. All of this complexity requires legal expertise and careful monitoring.
Meeting data localization requirements can result in significant costs for organizations, including infrastructure, compliance and legal costs. In addition, operational inefficiencies caused by meeting these requirements can result in additional financial burden. Smaller organizations in particular can struggle to keep up with these financial demands.
Existing laws and regulations governing how data must be handled can change rapidly, and new jurisdictions around the world are likely to introduce their own regulatory frameworks over time. This rapidly evolving legal environment can be challenging for organizations to keep up with, as they must continuously monitor legislative changes in all the countries where they operate.
Data sovereignty requirements can make it harder for global organizations to conduct business—fragmented data sets hinder comprehensive data analysis, while regional restrictions on data can affect global product development. Organizations must find the middle ground between operational efficiency and data sovereignty compliance.
Data sovereignty is complex, and organizations may take different approaches, but these best practices address the most common challenges:
Regular data audits help you stay on top of what data you have collected, where it is stored, how it moves and who can access it. By conducting an up-to-date inventory of all the physical locations where your data resides, you can identify the regional laws and regulations you must comply with. Make sure your audit includes production data, backups, development environments and data held by third parties.
To help your organization maintain data within required geographic boundaries, select a cloud provider with established regional hosting capabilities, and that also offers contractual guarantees on data location. When evaluating a provider, confirm that its service agreements spell out clear commitments regarding data residency.
Data encryption gives organizations control over who can access their data and when. While encryption doesn’t eliminate data sovereignty obligations, it does offer an additional level of protection should data cross borders inadvertently. Be sure to encrypt data both at rest and in transit, and maintain control of all encryption keys.
It is important to carefully monitor regulatory changes in all jurisdictions where your organization operates, and regularly assess how any changes could impact your business operations. The most comprehensive way to do this is to work with legal counsel in each location, but you can also consider subscribing to legal updates and joining industry groups.
Don’t make data sovereignty considerations an afterthought—they should be baked into your operations from the beginning. Factor data sovereignty considerations into how you develop your products, which markets you decide to enter, and which vendors you choose to work with. Develop a data governance framework with clearly defined roles and responsibilities for employees tasked with sovereignty-related decision-making.
In addition to establishing relationships with legal counsel in each jurisdiction where your organization operates, work with legal experts who have broad knowledge about global data protection laws. These experts have practical experience helping global organizations navigate the complex web of international data sovereignty requirements, and can even represent your organization in any enforcement proceedings with local governments.
Develop an incident response plan for employees to follow in the event of a data breach or other compliance violation. Be sure to include data breach definitions for each region, contact information for the appropriate regional response teams, and clear escalation procedures. Include pre-approved notification templates for regulators and key stakeholders in all relevant languages. Conduct incident response drills on a regular basis to identify gaps or weaknesses before a true incident occurs.
Many organizations use their cloud infrastructure to store data in one region, process it in another, and replicate it to multiple locations to improve performance—all of which makes data sovereignty more challenging.
To address these concerns, major cloud providers now offer increasingly sophisticated solutions. For example, AWS provides region-specific deployments and contractual commitments that data will remain within specific regions. Microsoft Azure and Oracle Cloud offer their customers similar regional guarantees and have developed “sovereign cloud” solutions. In addition, these providers maintain compliance certifications and conduct regular audits.
However, organizations cannot leave their compliance responsibilities solely in the hands of their cloud providers. Contracts with cloud providers must specifically address data sovereignty and include clear commitments about data location, but the organizations themselves must be cognizant of their specific responsibilities and maintain oversight of where their data is stored and how it is managed.
Today, data sovereignty compliance is no longer optional—it is a business-critical requirement that organizations cannot afford to ignore. The global compliance landscape will only grow more complex, and those organizations that proactively adapt will stay compliant and build trust with users and partners. Those that treat it as an afterthought will be at risk of steep financial penalties, reputational damage, increased regulatory scrutiny and other competitive disadvantages.
The data sovereignty space is constantly changing and increasing in complexity. In order to stay ahead, be sure to continue monitoring regulatory changes and evolving cloud solutions. Adjust and adapt your practices as needed, and invest in the expertise needed to ensure compliance.
Data sovereignty requirements often stipulate that security investigations and forensics be managed within specific jurisdictions, and some sovereignty laws also restrict where organizations can store security monitoring data. All of this can make security operations more complicated for global companies.
To comply with data sovereignty rules, organizations must choose cloud providers with a presence in the appropriate regions where they operate, and ensure that their cloud infrastructure is configured so that data is not replicated to non-compliant locations. Contracts with cloud providers must include explicit language regarding issues such as data location and government access.
The United States does not have comprehensive data sovereignty laws in the same way the EU does with GDPR, but it does have a number of data privacy laws. Some are at the state level, such as the California Consumer Privacy Act (CCPA) or the Colorado Privacy Act (CPA). Others are specific to certain sectors, such as the Health Insurance Portability and Accountability Act (HIPAA) for healthcare and the Gramm-Leach-Bliley Act (GLBA) for financial services. While the U.S. does not have strict data localization requirements, certain U.S. laws can apply to data belonging to U.S. persons—even when that data is stored outside the United States.
A sovereign cloud is a deployment model designed to meet the strict data residency and sovereignty requirements of specific countries or regions. It provides strong contractual guarantees on where data is stored and who can access it, simplifying the complexity of multi-jurisdictional compliance for global organizations.
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