The 3 New Rules for Data Sovereignty: Location, Location, Location

Real estate isn’t the only kind of business where location matters. Since Edward Snowden revealed the extent of the U.S. government’s spying on private citizens, data localization or data sovereignty has been a hot topic in data security and IT management, especially for global companies.

The ability to locate and segregate customer data now matters a great deal to U.S. companies because of recent developments in data privacy and data sovereignty laws, particularly in the European Union (EU), Russia, and Canada. Citizens in these countries want their personal data to be private and safe from unauthorized collection. Their governments recognize the right of their citizens’ privacy and also recognize the right of data sovereignty—the right of countries to hold data within their borders. In some cases, governments are passing new laws that require data localization.

Data privacy, data sovereignty, data localization – for any global organization with consumer data, it’s important to understand these concepts and the requirements they create for IT investments and operations. Here’s a quick primer on all these terms and why they matter.

What Is Data Sovereignty?

Data sovereignty is the concept that the data belonging to an individual or organization is subject to the laws of the geographical region in which the data is collected, stored, or shared. It is a fundamental concept of global privacy regulation, as different countries have different laws and regulations governing the handling of personal data. Any organization that operates internationally must comply with multiple regional and national data protection regulations to protect individuals’ data and privacy.

Businesses benefit from data sovereignty by controlling the data they collect and store. By understanding and managing the regulatory requirements of different jurisdictions, they can ensure the data is compliant and secure. Additionally, businesses can ensure that the data is only used for the purposes it was intended for and is not shared beyond their organization without the explicit consent of the data subject. This helps protect businesses from data breaches or misuses and increases trust in their brand.

Data sovereignty is a vital tool in ensuring data safety and compliance, which is why companies must be aware of their data privacy obligations and ensure that their practice of data sovereignty is in line with relevant regulations. Businesses that do not use data sovereignty could face severe financial, legal, and reputational repercussions. Poor data management, for example, could lead to significant fines from regulatory authorities, legal action from data subjects, and a decrease in consumer trust and loyalty. Data breaches and misuses can also lead to lawsuits and costly reputational damage, which can significantly impact a business’s success and profitability.

Data Privacy vs. Data Sovereignty vs. Data Localization

Data privacy refers to the confidentiality of data. Keeping data private means keeping it out of the hands of anyone unauthorized to read the data or change it. For example, the U.S. Health Information Protection and Availability Act (HIPAA) mandates that healthcare organizations and their business partners keep patient data confidential. The only people authorized to see a patient’s data are the patient, his or her healthcare providers, and the relevant insurance payer. In this regard, HIPAA is a data privacy law.

Data sovereignty refers to who has power over data. Webster’s Dictionary defines sovereignty as extreme power, especially over a political body, and freedom from external control. When applied to data, sovereignty generally refers to the principle that data stored in a country is subject to the laws and regulations of that country. For example, data stored in the United States is subject to the laws of the United States, and data stored in Germany is subject to the laws of Germany. There exists an additional layer of protection in the fact that Germany and 27 other European nations are members of the EU. As a result, the private data of EU citizens falls under the sovereignty of the EU as well as under the sovereignty of their individual nations.

Data localization refers to where data can be located. Some data sovereignty laws, such as the On Personal Data (OPD) Law that recently passed in Russia, not only specify who has power over data but also mandate that any data pertaining to a country’s citizens must physically reside in that country. In Russia’s case, as of September 1, 2015, if an organization has personal data about Russian citizens, that data must reside in data centers or other facilities within the Russian Federation. The OPD Law is a data localization law.

Data Residency or Data Transfer Restrictions

Whereas data sovereignty is the concept that a country has the right to control the flow of data, who has access to it, and how it is used and shared within its own borders, data residency can be defined as storing data in a physical location and ensuring it remains within the borders of a specific country or region. A policy or law dictates where organizations must store or process their data. These laws and regulations vary by country or region and have different implications for data privacy, security, and accessibility.

Businesses benefit from using data residency for a variety of reasons. It helps companies comply with local data laws and regulations, as well as other international laws, as you must store data in local physical locations to comply with local laws. Data residency also helps businesses protect and secure their data, ensuring hackers can’t access it from outside sources without proper authorization. Additionally, data residency provides data that is easily retrievable and can be used to promptly meet the needs of customers and business processes. Finally, data residency gives businesses control over their data and helps them manage, store, and process it securely and effectively.

Businesses that do not follow data residency rules or procedures may incur fines or other legal penalties if they fail to comply with local data laws and regulations. Additionally, they could lose customer trust or reputation if data is not stored securely or in the correct location. Companies that do not adhere to data residency requirements could also face costly data breaches if their data is not protected in the event of a cyberattack.

As a showdown between U.S. intelligence agencies and EU regulators looms over access and storage of data, precipitated by the recent invalidation of the Safe Harbor agreement by the European Court of Justice (ECJ), the role of “location” in data security and privacy is coming to the forefront and it’s imperative for businesses to understand the implications for conducting business in Europe.

Data Sovereignty in the Cloud

Data stored in the cloud is also subject to data sovereignty laws. Organizations must adhere to the laws of the country and jurisdiction in which that data is stored. Sorry to burst anyone’s bubble, but data is not actually stored in a cloud. “Cloud” refers (typically) to an offsite location or facility that manages and maintains servers, e.g., a server farm. Data sovereignty for data stored in the cloud includes data privacy and protection laws and access to data rights. It also ensures that data stored in the cloud remains secure, confidential, and compliant with applicable laws.

Businesses benefit from using data sovereignty in the cloud because it provides security, privacy, and compliance for their data. By ensuring that data stored in the cloud is limited to the jurisdiction in which it was created, businesses can ensure that their data remains safe and secure. Additionally, companies can use the data sovereignty laws to their advantage by providing that their data is accessible only to those who have permission to access it and that it is only accessed when necessary. This can help businesses remain compliant with data privacy laws and provide an additional layer of security.

The financial, legal, and reputational repercussions of not using data sovereignty in the cloud can be severe. Businesses may be faced with hefty fines and other penalties if they are found to be in breach of data privacy laws or if they fail to protect their data adequately. Additionally, businesses can face reputational damage if it is found that their data has been accessed or leaked without permission. All of these can hurt a business’s financial and legal standing, as well as its reputation.

With the Kiteworks secure file sharing and governance platform, organizations leverage the highest levels of security and control to comply with data sovereignty regulations .

To learn more, schedule a custom demo of Kiteworks today

Additional Resources

• Blog Post What Are Data Sovereignty Laws?
• Blog Post What Is a Guide to Information Security Governance?
• Blog Post What Is Regulatory Compliance?
• Blog Post What Are ITAR Compliance Regulations?
• Blog Post What Is Information Governance News?