Data privacy is a major concern these days — especially when the average cost of a data breach is $4.44 million. Fortunately, many countries and regions have passed laws that govern how to process data, giving peace of mind to individuals concerned about how organizations collect and share their information.

However, this means that organizations can’t simply decide how they want to manage their data, but instead must be aware of and in compliance with local and regional laws governing how they do so. IT leaders, especially in highly regulated industries like financial services, need a strategy for ensuring their data is in compliance wherever it’s collected, processed, transferred, and stored.

In this blog, we discuss what data sovereignty is and why it’s important to help IT leaders achieve better data management practices that can promote business growth and customer trust.

Data sovereignty definition

Data sovereignty is the concept that data should be governed by the rules and regulations in the locale and region where it’s generated, collected, or stored, and regional regulations should determine how to use data — not those who collect and use it. For example, if a United States' company collects data from customers in Europe, it would need to follow the European Union’s General Data Protection Regulation for managing that data — not just the U.S.’ rules and regulations.

For global organizations with footprints in multiple countries that would need to make sure their data management follows the laws of each specific country they operate in, data sovereignty is particularly critical. If the organizations don’t ensure compliance with the rules and regulations of the jurisdiction in which they operate, they not only are in violation of local data laws but also could compromise customer privacy and trust — all of which can have significant impact on operations, ranging from fines to loss of business.

Why is data sovereignty important?

Data sovereignty isn’t just about compliance with various laws and regulations within a particular jurisdiction. It ensures increased security, customer trust, and business growth as well. By developing laws and regulations around how organizations collect and use data like customer information or financial records, regions and locales set the standards for how to protect and secure data. Anyone wanting to manage data in that region must meet that privacy and security standard.

Practicing data sovereignty can also go a long way in increasing customer trust and confidence, as they know local privacy laws will protect their personal data. As organizations continue to expand their global presence and adopt more cloud computing, data sovereignty puts guardrails in place to appropriately manage that growing data.

How does data sovereignty affect enterprises thinking about expansion?

According to our Global Data Insights Survey, 78% of organizations follow a distributed data approach, with 40% having 11 or more IT infrastructure locations. Organizations looking to expand their operations globally must consider data sovereignty when creating their data localization strategy for more than storing their data. As mentioned, data sovereignty also applies to where the data is created, transferred, and processed. Thus, adhering to local data laws may require adding security measures like encryption or managing access, in addition to maintaining data centers in compliance with local and regional regulations.

What role does sovereign AI play in data-driven expansion?

As organizations expand globally and consider data sovereignty in their data localization strategies, the concept of sovereign artificial intelligence (AI) takes center stage. Sovereign AI extends the principles of data sovereignty to AI adoption. Creating AI models that are tailored to unique cultural, historical, and sociological contexts.

Sovereign AI could be a source of digital innovation that suits the fragmented data transformation in regions like the European Union (EU). There are very different jurisdictional and political strategies across the EU and wider EMEA, and sovereign AI can give nations a competitive advantage in the era of digital transformation.

Data sovereignty, data residency, and data localization: What is the difference?

Another key component of data sovereignty is data residency, or the physical location where data is stored or resides, which determines the jurisdictions and regulations that data falls under. As organizations look to expand globally, they may initiate a data localization strategy, which is the practice of storing and processing data in the location where it’s collected or generated. This not only allows data to live closest to those who need it the most, but it also mitigates compliance risk, complexity, and low latency as well — enabling organizations to focus on growing business operations and delivering top-notch customer service uninterrupted.

What are some common data sovereignty requirements?

While each region has the freedom to determine its data privacy laws and regulations, there are a few commonalities guiding regions and locales on how data should be collected and managed. A few requirements that today’s data privacy regulations have in common include:

Organizations must process personal data in a way that guards against data theft, damage, or destruction.
Individuals have a say in how their data gets used and can restrict or revoke use at any time.
Organizations should not collect any more data than required.
Organizations should monitor data for access, activity, and use to ensure compliance.
Organizations must rank data by risk and subjected to regular risk assessments in some instances.

Data sovereignty laws by country

According to the United Nations, 79% of countries have legislation that guides data collection, use, and sharing. Some of these include:

European Union’s General Data Protection Regulation
European Union’s Artificial Intelligence Act
California Consumer Privacy Act and Virginia's Consumer Data Protection Act
Brazilian General Data Protection Law
Singapore's Personal Data Protection Act 2012
Australian Privacy Principles
Japan Act on the Protection of Personal Information

Data sovereignty example: What financial services companies can do to ensure compliance

Global banks, wealth and asset management companies, and payment processors have a lot at stake regarding properly and safely managing the data they work with, especially in such a highly regulated industry. IT leaders in these financial services companies must manage various privacy, regulatory, and IT architecture concerns to protect the customers’ personal and financial information, transactional information, and other financial data.

How financial services companies can build a data sovereignty strategy

IT leaders in financial services companies can build a robust and strategic approach to data sovereignty with the following steps:

Understand the data

Today, fewer than 1% of companies have visibility into 95% or more of their assets.¹ IT leaders can start building a strong data sovereignty strategy by knowing what data they have and where it lives. This visibility will not only improve data management but also will provide a literal map of which local or regional regulations govern their data.

Learn about local data sovereignty regulations

The next step for IT leaders is to learn more about those regulations so they can put strategies in place to ensure compliance: implementing new security measures to protect the data, revising messaging around what customer data is necessary, or changing how to store data.

Build a solid data localization strategy

Implementing a data localization strategy that guides storing and collecting data can help reduce complexity and enforce compliance. This includes ensuring data centers not only have the necessary performance requirements for data processing but maintain local copies of applications, systems, and customer or transaction data to support distributed, in-region workflows. In-location data centers need the ability to scale as well.

Ensure organization-wide compliance

Part of a strong data sovereignty strategy is making sure everyone in the organization understands how to handle data. This includes educating teams across the organization, from sales and marketing to IT, about accessing data, collecting and processing data, and being aware of overall cybersecurity so that individuals don’t inadvertently compromise company and customer data.

Include third parties in the data sovereignty strategy and implementation

According to Gartner, 45% of organizations have experienced business disruptions through third parties they work with, which is why IT leaders should also extend their data sovereignty strategy to third-party companies as well. This ensures that third parties adhere to local and regional regulations and have a robust security approach to protect against a breach.

Partner with an experienced global data center to mitigate data compliance issues

Finally, IT leaders should look to experienced partners to help strengthen their approach to data management. The Digital Realty suite of solutions reduces the complexities of data sovereignty compliance with seamless implementation across localized infrastructure. With PlatformDIGITAL®, even the most distributed companies can maintain global connectivity while ensuring local data and cloud compliance and the increasing IT infrastructure needs artificial intelligence workloads require as well. Check out the video below to learn more about how PlatformDIGITAL® enables private AI, as an example.

How PlatformDIGITAL® Enables Private AI | Digital Realty

Build a proactive data infrastructure with Digital Realty

As organizations continue to expand their global footprint and big data becomes more pervasive, IT leaders who want to prepare for the future can make data sovereignty part of their capabilities today. PlatformDIGITAL® can play a key role in ensuring local compliance with less risk and complexity.

See how Digital Realty can support your data sovereignty strategies today by learning more about PlatformDIGITAL® or reaching out directly to our sales team at sales@digitalrealty.com.

¹Gartner, Innovation Insight for Attack Surface Management, Mitchell Schneider, John Watts, and Pete Shoard, March 2022.

A comprehensive guide to data archiving strategy