Friday, July 19, 2024

What is Data Sovereignty and Why Does It Matter?

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The data explosion of the last decade raises interesting concerns regarding the value and ownership of data. Individuals, organizations, and governments are continuously generating, collecting, and processing massive amounts of data to drive innovation, make informed decisions, and improve services—but who is actually responsible for protecting it? The concept of data sovereignty has emerged as an answer to this complicated question, reflecting the growing need for individuals, organizations, and nations to exercise control over their data and protect it from unauthorized access and exploitation.

In this article, we’ll delve into the concept of data sovereignty, its importance, challenges, implications, and treatment across the globe, and how it affects your organization.

What is Data Sovereignty?

Data sovereignty is the premise that data should be subject to the laws and regulations of the country where it is collected or stored. As a legal and political concept, this ensures that data is controlled by the pertinent entities and that they have the authority to determine its usage, storage, and dissemination.

For individuals and organizations, this means ownership under the law over the data they generate or handle, thereby preventing unauthorized access, misuse, or exploitation. On a national level, countries have the legal right and authority to control access, storage, processing, and movement of data within its borders.

How Data Sovereignty Works

Data sovereignty is the idea that data collected from a particular location is subject to that location’s laws and governance—for example, a California-based organization that collects data from its Canadian customers must comply with relevant data legislation in Canada, even though the organization is located in the U.S.

Similarly, any data collected from the U.K. must comply with U.K. data sovereignty laws. Firms with a substantial international footprint must deal with a complex landscape of issues in terms of data collection, data processing, and data sovereignty.

Data Localization and Data Residency

Data sovereignty and data localization/residency are related, often conflated concepts that pertain to the control and handling of data within specific geographic regions. While data sovereignty emphasizes a country’s legal authority over data within its borders, data localization/residency—also referred to as data domestication—specifically refers to the practice of requiring data to be physically stored and processed within a specific country or geographic region. This requirement may be mandated by law or regulatory measures to ensure greater data control and protection.

History of Data Sovereignty

The history of data sovereignty traces its roots to the rise of the internet and the globalization of data flows. As online resources like email and the web became a staple for consumers and businesses alike, governments across the world began to realize the need to assert control over data generated within their borders. Data localization measures and laws emerged, requiring companies to store certain data locally or obtain approval before transferring data overseas to bolster national data security and promote economic interests.

Data Sovereignty in e-Commerce, Big Data, and Cloud Computing

Issues around data sovereignty continued to evolve with the rise of e-commerce and related consumer data concerns. And as firms began adopting the cloud and big data technologies, the sheer volume and complexity of data made it challenging for governments to regulate and control its flow effectively. The cloud revolutionized data storage and processing, allowing companies to move data beyond national borders efficiently; however, this ease of data movement also sparked concerns about access rights and jurisdictional conflicts. Data localization requirements in various countries also prompted cloud providers to set up regional data centers.

Introduced in 2018, the European Union’s General Data Protection Regulation (GDPR) laws were the first set of data privacy regulations aimed at protecting individual citizens’ privacy rights across international borders. Due to its all-encompassing mandate, GDPR also raised new questions regarding data sovereignty, and its extraterritorial scope and strict rules on data transfers forced organizations to rethink their data processing and storage practices.

Data Sovereignty Today

As it stands, numerous governments have passed laws requiring certain types of data to be stored and processed domestically. However, GDPR remains the most comprehensive set of data protection regulations globally, as it applies to all EU member states and regulates the processing of personal data within the EU’s borders. The law grants EU citizens explicit control over their data and mandates strict data protection standards.

It’s worth noting that GDPR-covered data may be transmitted out of the EU, under the condition that the non-EU country has implemented corresponding data protection laws. Additionally, GDPR projects an individual’s right (as it pertains to data) to be forgotten, as well as their right to request/access data that organizations have about them, and correct that data. It also stipulates that an individual must be informed if their data has been exposed—organizations must report any breaches within 72 hours of the incident.

The U.S. House of Representatives passed the American Data and Privacy Protection Act (ADPP) in June 2022, but the legislation has yet to be implemented. A growing number of states have created their own data privacy laws in the absence of federal legislation—for example, the California Consumer Privacy Act (CCPA) takes cues from the EU’s GDPR in its data privacy legislation and framework.

The Importance of Data Sovereignty

Governments regard data sovereignty as a matter of national security. Certain types of information (e.g., government files, sensitive infrastructure data) require strict control and governance to prevent unauthorized access by foreign actors or malicious entities; data sovereignty helps countries bolster their nation security by allowing them to regulate the storage and processing of such data within their borders. Additionally, given the immense value of data in today’s information-driven economies, governments have a keen interest in retaining control over their citizens’ data, which can in turn be used to drive local innovation and economic growth.

For organizations, this means staying vigilant about the different countries’ varying data protection laws and regulations in order to avoid legal complications and penalties. Data sovereignty ensures that organizations are in compliance with the data protection laws of the jurisdiction where the data originates, and violating these laws can be costly—for instance, GDPR’s administrative fines can reach €10 million, or 2 percent of the offending party’s annual global turnover, whichever is higher.

Data Sovereignty Challenges

Data sovereignty presents several key challenges related to global data flows, data localization laws, and cross-border data sharing that make it challenging to implement strict measures/controls. For example, data may be processed or stored in foreign jurisdictions where different data protection laws apply, creating some confusion around which actual laws take precedence.

Multinational organizations operating in different countries face a unique dilemma with data sovereignty: if data localization laws require their data to be stored within regional borders, the ability to seamlessly share data as a single organization is severely hindered. This goes for both private and public entities—for example, data sovereignty can obstruct international data sharing for research collaborations or joint cybersecurity efforts.

Technology Challenges

Because cloud services are often hosted in data centers across multiple regions, the true physical location of the data may be difficult to trace—this makes enforcing data sovereignty difficult, especially if multiple third-party cloud platforms are in play. Data stored in vendor-managed SaaS applications are even more opaque and difficult to track. However, cloud service providers typically offer their services by region, enabling organizations to comply with local data privacy laws and regulations. Many vendors will also provide attestations and certifications verifying their compliance with local and regional data privacy/protection laws.

Sovereign Cloud Solutions

To address the need for cloud services that meet the requirements mandated by local regulatory/legislative frameworks, leading cloud service providers developed the concept of the sovereign cloud: a cloud computing architecture that restricts each subscriber’s data and metadata to sovereign access only, with foreign data access blocked in accordance with the originating country’s privacy law. These solutions provide a trusted cloud environment for data processing and storage that offers built-in data sovereignty.

Data Sovereignty and Artificial Intelligence

Recent developments in the commercialization of AI have surfaced a new slew of data sovereignty issues. AI service providers create their machine learning models from training data sourced from the public (i.e., the internet), so it’s not readily apparent who the data ultimately belongs to, where it’s located, and what constitutes fair use of a continuously expanding corpus of human knowledge. Governments around the world are currently grappling with these bleeding edge issues—for example, the EU has started to formalize its stance on sovereignty in AI.

Bottom Line: Data Sovereignty Considerations and Best Practices

Data sovereignty is perhaps most relevant to organizations that operate globally with a multinational presence; that said, all entities that handle data should be aware of data sovereignty’s specific implications and relevance, and carefully consider where they store their data to comply with data sovereignty laws and regulations.

Depending on the circumstances, firms may need to set up local data centers or work with cloud service providers that offer data localization options. For hosted applications and data, or when outsourcing data processing or storage to third-parties, organizations should carry out the proper vetting activities and due diligence for ensuring that the vendors’ data handling practices align with data sovereignty requirements.

Lastly, organizations should establish robust data governance frameworks for validating compliance with data protection laws across different jurisdictions. This includes implementing privacy policies, obtaining consent from data subjects, and managing data securely, to name a few.

In today’s world, where data plays a pivotal role in shaping economies, societies, and national security, data sovereignty has unsurprisingly become a top-of-mind concern for both organizations and governments alike. Continued data harmonization between nations is currently in the works, and will likely yield more unified data sovereignty frameworks for addressing new challenges and emerging risks. Ultimately, ensuring data sovereignty will require more international collaboration, transparent regulations, and responsible data governance to protect the rights and interests of all stakeholders in the data ecosystem.

Read next: Data Management:Types and Challenges

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