Even the largest global companies have challenges operating across multiple countries, moving and storing data and navigating multiple jurisdictions. In the globalised digital economy, data can flow across borders in milliseconds. But the legal frameworks governing this data vary widely from one jurisdiction to another.

If the UK, Europe and the US are characterised by robust data protection laws, so are many other countries, including the Nordics, Australia, India and China, to name a few. Very few countries have no data protection laws at all. With data now a common global currency, even the smallest companies are likely to be dealing with data in one form or another.

Global Data Flow Description

Although some of the most high-profile breaches of data protection law – and consequently some of the stiffest fines – relate to huge, global companies, such as Meta, Amazon, Tik Tok and British Airways, small companies can get caught in the regulator’s crosshairs too.

Here in the UK, reprimands, reputational damage and substantial fines are the norm. Fines totalling billions of euros have been issued in Europe under the GDPR. In the US the Federal Trade Commission has issued fines totalling billions of dollars.

No company is above the law – even when those laws are complex and differentiated across the world. You can choose to store and process data almost anywhere. This choice may be predetermined by your customers, or you may be making choices based on cost, latency, features of a cloud service or some other factor.

But the choices you make also need to consider the legal ramifications of those choices. Many cloud providers are now making claims for “Data Sovereign” services. To minimise the legal risks it's vital to understand what data sovereignty, data residency, and local legal mandates for data storage and processing really are, how to distinguish between them and how they can work for you.

Each will drive different outcomes for cloud hosting and associated data management strategies.

This blog explains the distinctions between data sovereignty, data residency, and local data mandates and explores the respective implications for companies. By defining these terms clearly and examining their relevance in today's interconnected world, we can equip companies with the knowledge to make informed decisions about their data management practices.

Defining key terms

Data sovereignty
Data sovereignty is the concept that data is only ever subject to the laws and regulations of the country where it is collected, stored and processed. This means that the data must comply with the local legal requirements of that nation and must never be subject to any other jurisdiction. Highly sensitive data, such as data deemed critical to national security or financial data may be subject to strict data sovereignty rules.

Data residency
Data residency relates only to the physical location where data is stored and processed. A data residency requirement means that data must reside within a specific geographic location, often driven by company policies or compliance and regulatory requirements. Unlike data sovereignty, data residency does not in itself prevent data from being subject to other jurisdictions, nor does it not inherently prevent data from being accessed or transferred across borders, which can complicate compliance with local privacy regulations.

Local legal mandates for data
Sometimes known as data localisation, this refers to specific laws requiring certain types of data to be stored and processed within a specific geographic location, essentially a legal enforcement of data residency. Laws in countries like China, Russia and India mandate strict requirements, restricting the transfer of sensitive data, like financial data or citizen data. The laws vary globally and may not always protect data from onward transfer or foreign jurisdictions, depending on which country the company hosting the data is headquartered. This can create complexities for businesses, requiring them to adapt their data management practices in order to comply with differing regulations.

Understanding the distinctions between these concepts is crucial for businesses navigating international data regulations. The table below summarises the key aspects of each term, highlighting their differences and implications:

Aspect Data Residency Data Sovereignty Local Legal Mandate
Definition Physical location where data is stored and processed. Legal control governing data based on collection, storage and processing location. Legal requirement to store and process certain data types within national borders.
Focus Geographic storage location. Legal control of the data governing how data is collected, stored and processed. Ensuring certain data types remain within specific jurisdictional boundaries.
Implications Influences data centre locations and cross-border data flows. Protects data under specific legal frameworks. Mandate’s location for certain types of data, restricts data transfer.
Challenges Managing data across regions complicates privacy compliance. Truly sovereign data must be shielded from foreign jurisdictions. Compliance with strict local laws, which will vary by country.
Security risks Storing data in a single location creates a potential single point of failure. Depending on a provider's offerings, data residency requirements might limit redundancy and backup. Not all countries have the same level of cybersecurity maturity. Strict data sovereignty controls can make it difficult for countries to share cyber threat intelligence or collaborate on investigations. Companies operating in regions with data localisation requirements might face additional costs for setting up and maintaining infrastructure within those regions.
Operational outcomes Companies with strict data residency requirements might have fewer options when choosing cloud providers, particularly if looking to shield data from foreign jurisdictions. Managing compliance with data residency regulations in different regions can add complexity for global businesses. Ensures legal compliance and control, although attaining true data sovereignty could limit the pool of suitable cloud service providers.

Managing Data Sovereignty and Residency

Managing data effectively under both sovereignty and residency constraints requires a strategic approach that incorporates legal compliance, technological solutions, and operational best practices.

Here are some strategies and tools that can assist in this management:

  • Local legal mandates: implement strategies to store and process data within the legal boundaries of a specific jurisdiction ensuring local legal compliance and limiting risks associated with data transfer across borders.
  • Technological solutions:
    • Encryption: use strong encryption techniques both for data in transit and at rest to protect integrity and confidentiality, reducing the risks from unauthorised access.
    • Cloud Access Security Brokers (CASBs): use CASBs to enforce security policies and monitor data movement between on-premises infrastructure and between cloud environments.
    • Data Loss Prevention (DLP) Tools: implement DLP systems to detect and prevent data breaches or unauthorised data transmission outside the company’s network.
  • Legal and compliance teams: use an in-house or consultant-based legal and compliance team specialised in international data protection laws to update and audit data management practices.
  • Regular compliance audits: if applicable, conduct regular audits to ensure data management practices are in compliance with international law. Audits can identify vulnerabilities and alignment gaps in data management strategies.
  • Data sovereignty and residency training: provide regular training for IT and data management teams on the latest in data protection laws and the importance of data sovereignty and residency. This will help teams understand the impact of their work on compliance and data security.
  • Vendor assessments: routinely assess third-party vendors and cloud service providers to ensure their compliance with data sovereignty and residency requirements. Use contractual agreements to bind vendors to comply with these legal standards.
  • Incident response plan: develop and maintain a robust incident response plan that includes procedures for data breaches, including across different jurisdictions where applicable. This plan should also outline steps for legal recourse and notifications in line with international laws.
  • Privacy by design: implement the principle of privacy by design into all new data management and IT projects to ensure that data protection is a key consideration from the outset, rather than an afterthought.

Choosing the Right Cloud Infrastructure: Civo’s UK Sovereign Cloud

As businesses navigate the intricacies of data residency, sovereignty, and local legal mandates, choosing the right cloud infrastructure becomes paramount.

Civo’s UK Sovereign Cloud offers a solution tailored to meet these challenges by operating solely under UK law, eliminating legal ambiguities, and ensuring compliance with the country's rigorous standards. This not only enhances safety and security by keeping data within the UK but also supports the UK's digital economy. By integrating such technological solutions, businesses can simplify compliance across jurisdictions and protect against international threats, thereby future-proofing their data management strategies.

To find out more about Civo’s UK Sovereign Cloud, click here.