What is data sovereignty, and why does it matter?

Today, businesses must protect sensitive customer and business data from cyber threats. Detecting threats has become more challenging since hackers always devise new ways to access sensitive data.

The best way to secure data is to maintain complete control over it. Businesses should implement cybersecurity measures to protect client data, cash flow, and online customers. The best practices to do so usually include establishing a strong and unique password, deleting unnecessary data, encrypting the device, backing up the data.. But, can organizations do more to ensure their data stays protected and secure?

As a concept, data sovereignty refers to being in full control over important customer and business critical data. Data needs to be created, collected, and processed in a way that ensures full ownership for the organization. The physical location of data storage also plays an important role to data sovereignty, especially with the regulations that overrule each other —like the US CLOUD Act and GDPR.

This article explores the concept of data sovereignty and why it matters to companies across all industries.

What is data sovereignty?

Data sovereignty is the concept under which data is created, collected, processed, and stored. The term itself is used to describe both countries' and companies' ownership of data. Here, we'll be discussing the organizations' sovereignty over their own data, which also includes respecting the country's data protection laws and regulations.

Data security, cloud computing, network sovereignty, and technological sovereignty are strongly related to data sovereignty. Maintaining control over encryption and access to your data prevents sensitive information from falling into the hands of foreign entities without the client’s explicit consent.

Data sovereignty includes concepts such as data privacy, data localization, and data residency, which are often used interchangeably. However, they differ in some ways. 

Data privacy

Data privacy refers to an individual's freedom to choose whether, how, and to what extent their personal information is collected or shared. This concept has led to the development of regulations — like GDPR —, customs, and laws that guarantee that any information the customer shares will be used. This includes personal information like names, addresses, phone numbers, and other personal traits.

Data localization

Data localization is the act of storing information where it originated. For example, if a business collects data in the US, it should store it there rather than sending it to another country. The data is only allowed to leave the country’s borders after it has met government protocols and received explicit consent from the customer according to most regulations.

Data residency

Data residency refers to where a company decides to store its data geographically. While the decision is usually based on government policies, storing the data close to where it will be used is the guiding principle. 

Why is it critical to protect sensitive customer data?

Many Americans think that businesses and governments follow and monitor their online behavior.  81% feel that the risks they suffer due to data gathering through businesses outweigh the advantages, and 66% feel the same regarding government data collection.

Protecting sensitive customer data is vital because if it falls into the wrong hands, it can be used to exploit your business and ultimately the customer. Failing to protect business data can also lead to poor business reputation and loss of business.

However, you also need to take into account the data privacy regulations and make sure you're not breaching them. Maintaining data sovereignty makes it easier to have all the control over how your data is collected, stored, and processed — meaning that it's within your power to stay compliant to GDPR, CCPA, and other data privacy regulations. To give an example, GDPR breaches can incur direct costs to the company due to data privacy violation fines.

Data sovereignty challenges 

1. GDPR vs. US CLOUD Act

These two data sovereignty regulations are causing headaches to many EU-based organizations.

On one hand, the General Data Protection Regulation (GDPR) establishes a legal framework for businesses to handle customer data in the European Union.

On the other hand, the US CLOUD Act empowers the US government bodies to require the surrender of customer data regardless of where it's located. The Act refers to US-based companies. It directly conflicts with GDPR and has already created a lot of problems for both US-based companies and EU-based businesses.

For example, we've seen schools and government-related businesses in France, Germany, Sweden, and other countries stopping their use of MS Office, a product from Microsfot, US-based company.

The debate is far from being over, but for now, it seems like the only way for EU-based businesses to remain in charge of their data is to work with other EU-based organizations if they need to exchange, store, collect, or process customer data.