Data Sovereignty: A Global Tug-of-War

Data sovereignty transforms how businesses manage, store, and secure information, from national security concerns to economic strategies and privacy advocacy.

This article dives deeper into the rise of data sovereignty, its implications, the challenges organisations face, and the strategies they employ to stay compliant while driving innovation.

The Rise of Data Sovereignty

What Is Data Sovereignty?

At its core, data sovereignty reflects a nation’s effort to assert control over data generated within its borders. This control is not just about power—it’s tied to national security, economic independence, and the protection of citizen privacy. Countries enforce this through regulations requiring either:

•            Data Localization: Storage and processing of data must occur within national boundaries.

•            Regulated Data Transfers: Data can cross borders, but only under strict compliance frameworks.

Why Does Data Sovereignty Matter?

National Security: Governments seek control over data to safeguard sensitive information and reduce vulnerabilities to cyber espionage or external interference.

Economic Stability: Storing data locally promotes domestic IT ecosystems, creates jobs, and reduces reliance on foreign technology providers.

User Privacy and Trust: Localized data storage ensures compliance with domestic privacy regulations, fostering user trust in an era of widespread data breaches and surveillance concerns.

"As a principle, Wells Fargo doesn’t move any data outside the country of origin. Hence, all US customer data resides in the US. And even before any team is allowed to access the data, we complete a thorough legal and compliance review and approval of the activities, the data that will be accessed, and its purpose."-  Nitin Sareen, Consumer, Small & Business Banking lead, Wells Fargo India & Philippines

In the last decade, governments around the world have responded to cybersecurity threats, cross-border data flows, and user privacy concerns with stronger data regulations. Below is a snapshot of global data sovereignty trends:

1. European Union: The General Data Protection Regulation (GDPR) has become a global benchmark for data privacy and sovereignty. It enforces data localization in some cases and requires robust controls for cross-border transfers.

2. India: The Digital Personal Data Protection Act (DPDPA) mandates the storage of specific types of sensitive data, such as financial and healthcare information, within the country.

3. United States: While federal regulations remain fragmented, individual states like California (CCPA) lead with strict data privacy laws.

4. China: Under its Cybersecurity Law, China requires businesses to store data domestically, with limited allowances for transfers abroad.

Nitin Sareen, Consumer, Small & Business Banking Lead at Wells Fargo India & Philippines, highlights the critical role of data sovereignty in maintaining customer trust.

“Data sovereignty is not just a regulatory requirement—it’s a matter of customer trust and privacy,” Sareen explains. Wells Fargo ensures compliance by embedding data sovereignty into its core processes. For instance, U.S. customer data is strictly stored within the U.S., with stringent controls ensuring access is permitted only after thorough legal and compliance reviews. Even global teams access this data via secure virtual channels, further reinforcing the bank’s commitment to privacy and security.

To handle evolving data protection laws, Wells Fargo employs a four-pronged strategy: assessment, control, monitoring, and awareness. By continuously monitoring data-handling processes and offering regular training to employees, the bank ensures that its workforce is well-versed in compliance protocols. Sareen also highlights Wells Fargo’s hybrid multi-cloud strategy, which leverages both on-premises and cloud solutions to balance resiliency and data governance, ensuring high-quality, secure access to data across its lifecycle.

Wells Fargo’s Approach to Data Sovereignty:

Data Localization: U.S. customer data is stored exclusively in the U.S.

Secure Access Controls: Global teams access data via secure, virtual channels after legal review.

Hybrid Multi-Cloud Strategy: A combination of on-premises and cloud-based solutions ensures resiliency while complying with local laws.

Employee Training: Regular compliance training ensures teams handle data responsibly.

Global Trends in Sovereignty Regulations

1. China: Enforces strict data localization laws through its Cybersecurity Law.

2. India: Balances global collaboration with laws favouring local storage under the DPDPA.

3. United States: Data privacy remains fragmented, but states like California have introduced their frameworks, such as the CCPA.

4. EU: The GDPR mandates robust data controls, including the right to data portability.

Challenges in Implementing Data Sovereignty

Managing data sovereignty is no easy feat. Organisations face several challenges:

1. Regulatory Fragmentation: Every country enforces sovereignty differently, creating a patchwork of laws. For multinational companies, this increases compliance complexity and costs.

2. Technological Dependencies: Although sovereign cloud solutions aim to reduce dependency on foreign providers, global supply chains still dominate hardware and software production, creating a sovereignty paradox.

3. Cybersecurity Risks: As data becomes more decentralized with edge computing and IoT devices, vulnerabilities across systems can threaten sovereignty goals.

"To ensure data protection compliance, organizations should implement a robust data governance framework, classify data, stay updated on regulations, prioritize privacy in system design, enforce strong security measures, conduct regular assessments, have a plan for data breaches, train employees, and perform regular audits." - Mrinmoy Dey, The Chief Information Security Officer, Lendingkart

The Current Context

In 2024, data sovereignty is a pivotal concern driven by new regulations, international alliances, and advancements in digital technologies. For instance, the European Union continues to push initiatives such as the European Cybersecurity Certification Scheme and the AI Act to ensure secure and compliant data practices. Similarly, other countries, including India, the US, and China, are implementing their own policies to bolster control over data within their jurisdictions.

Emerging technologies, such as generative AI, have also complicated the landscape. With AI models requiring vast amounts of data for training, governments and businesses face the challenge of ensuring that sensitive information remains protected while enabling innovation. Countries are adopting multi-cloud and hybrid cloud strategies to balance sovereignty with operational flexibility.

India’s regulatory environment adds layers of complexity for businesses operating in the region.

Rishi Agrawal, CEO and Co-Founder of Teamlease Regtech, outlines the requirements of Indian data localization laws, including the Reserve Bank of India’s directive for payment data storage, SEBI’s financial data requirements, and health data mandates under the National Digital Health Mission (NDHM).

Agrawal emphasizes that organisations must adapt to localization laws that mandate specific types of data to be stored within Indian borders, such as financial, insurance, and healthcare records. However, complying with these laws often comes at a cost: companies may need to operate multiple data centres, increasing operational complexity. Agrawal suggests that organizations adopt hybrid cloud strategies to address this challenge, storing sensitive data locally while using public cloud solutions for less critical workloads.

Regulatory technology (RegTech) tools, he notes, are invaluable in navigating this maze of compliance. By automating compliance tracking, reporting, and workflow adjustments, companies can reduce errors and stay updated with regulatory changes, allowing for more agile and adaptive governance practices.

"RegTech tools can provide effective solutions ensuring compliance with data localization laws. With the evolving regulatory landscape in India, especially the Digital Personal Data Protection Act (DPDPA), these tools can help organizations keep a detailed checklist of all compliances related to the law of the land." - Rishi Agrawal, CEO and Co-Founder of Teamlease Regtech

Key Data Localization Laws in India

1. Reserve Bank of India (RBI) Directive (2018): Under the Payment and Settlement Systems Act 2007, all payment data must be stored locally in India. This includes information on transactions, payment credentials, and customer data.

2. Insurance Regulatory and Development Authority of India (IRDAI): The IRDAI’s 2015 regulation mandates that all insurance-related records, including claims data and policyholder details, must be stored within India.

3. Securities and Exchange Board of India (SEBI): SEBI requires that trading records, sensitive investor data, and financial transaction information pertaining to Indian investors be maintained locally.

4. National Digital Health Mission (NDHM): Under NDHM, health data generated as part of healthcare services and digital health records must be stored in India.

5. Companies Act, 2013: The Indian Companies Act, along with the Companies (Accounts) Rules 2014, requires organizations to maintain financial records at their registered offices in India.

These regulations highlight India’s emphasis on safeguarding sensitive sectors, including financial services, healthcare, and technology, from undue foreign influence or cybersecurity threats.

Challenges of Data Localization Laws in India

According to Agarwal, while data localization bolsters sovereignty and security, it also introduces significant operational and technological complexities for businesses, especially those with global operations.

1. Fragmented Regulatory Environment: India’s data localization laws operate in tandem with other global data privacy frameworks like GDPR (Europe) and CCPA (California). Companies that operate across borders face the challenge of adhering to conflicting laws.

For example:

• An American company operating in India may be required to localize Indian user data while complying with GDPR for its European customers.

• This results in costly and complex IT infrastructures, requiring multiple data centres to meet different regulations.

2. Increased Operational Costs: Data localization requires organizations to invest in building and maintaining local data centres. Hybrid solutions may be needed to separate sensitive data from less critical data. This adds layers of complexity to IT architecture, increases maintenance costs, and raises data transfer overheads.

3. Technological Challenges: Businesses must rethink their cloud strategies to balance data residency requirements with operational efficiency. Hybrid cloud or multi-cloud environments are often necessary, but they introduce challenges in terms of integration, scalability, and data governance.

"Hybrid multi-cloud resolves the problems of distributed data systems and further offers operational resilience, scalability, and security. CtrlS helps businesses govern data so that they can navigate complexities, implement robust governance frameworks, and achieve seamless operations in a digital-first world." - Ranjit Metrani, President, Managed Services, CtrlS Datacenters

How RegTech Tools Enable Compliance

As data regulations evolve, organizations are increasingly turning to Regulatory Technology (RegTech) solutions to stay ahead of compliance requirements. These tools help businesses track, manage, and automate regulatory processes, significantly reducing compliance burdens.

Benefits of RegTech Tools in India’s Evolving Regulatory Landscape

1.Compliance Tracking and Monitoring: RegTech platforms provide real-time tracking of data localization laws, helping businesses stay updated with regulatory changes. For example:

• Dashboard Alerts: Instant notifications on updates to laws like the Digital Personal Data Protection Act (DPDPA).

• Compliance Checklists: Automated workflows ensure organizations meet all requirements, from storing data locally to adhering to secure data transfer protocols.

2. Automation of Reporting: Generating compliance documents and audit reports for regulators is often time-consuming and prone to error. RegTech automates these processes, reducing manual intervention while ensuring accuracy.

3. Digital Repositories: RegTech solutions enable businesses to centralize their compliance records in secure digital repositories, making them easily accessible for audits or legal reviews.

4. Regulatory Intelligence: By leveraging AI and machine learning, RegTech tools can analyse regulations across jurisdictions and recommend optimized workflows for compliance.

Use Case: TL RegTech’s Compliance Solutions

TL RegTech offers a comprehensive platform tailored to Indian regulatory needs:

• Unified Compliance Database: Covers central, state, and local laws.

• Customizable Dashboard: Tracks data localization mandates specific to industries like banking, insurance, and healthcare.

• Integration with Digital Public Infrastructure (DPI): Leverages tools like the Enterprise DigiLocker and API-enabled filings to streamline compliance workflows.

By automating compliance tasks and providing real-time insights, RegTech tools like TL RegTech ensure that businesses can adapt to regulatory shifts without disruptions to their operations.

Trends Shaping Data Sovereignty

1. Rise of Sovereign Clouds: Cloud providers like AWS and Oracle have introduced region-specific solutions such as European Sovereign Clouds, designed to adhere to local laws. These platforms often focus on regulatory compliance and offer capabilities like data localization, encryption, and strict access controls. While these efforts are promising, challenges remain, such as scaling these platforms to match the global capabilities of traditional hyperscalers.

2. Edge-to-Cloud Continuum: The transition from edge computing to centralized cloud solutions is becoming critical in sensitive industries such as healthcare, finance, and energy. Controlled “Edge-to-Cloud” frameworks allow businesses to maintain a high level of sovereignty by ensuring end-to-end data control. These frameworks incorporate robust cybersecurity measures, including encryption and behavioural monitoring.

3. Industry-Specific Data Spaces: Initiatives like GAIA-X are creating secure and collaborative data-sharing frameworks. These “data spaces” aim to foster innovation while maintaining control over data. For example, projects like Catena-X in the automotive industry are enabling businesses to share data securely, enhancing operational efficiency while adhering to sovereignty requirements.

As regulations continue to evolve, organizations must remain agile in their data governance strategies. Mrinmoy Dey, Chief Information Security Officer at Lendingkart, emphasizes that managing data sovereignty requires a proactive approach:

“In today’s world, managing data sovereignty and compliance is essential to building trust and transparency,” Dey notes. He advocates for implementing privacy-by-design principles, performing regular audits, and conducting continuous data privacy impact assessments. Organizations should also focus on training employees to handle data responsibly, establishing clear incident response procedures, and adopting sufficient security measures.

Dey underscores the fundamental need for companies to manage data ethically and responsibly throughout its lifecycle. Data sovereignty, which mandates that data remains within the borders of the country where it originates, has become a critical pillar of trust and transparency.

Data sovereignty is no longer just a technical or regulatory issue—it has become a geopolitical strategy. For instance, tensions between the US and China have led to heightened scrutiny of data sharing and storage practices.

“Managing data sovereignty and compliance is essential to building an environment that fosters trust,” says Dey, emphasizing that the intricacies of data management must align with the legal and ethical standards of each region. From addressing legal conflicts to ensuring data privacy and security, Dey points out that companies must implement effective governance frameworks that ensure ongoing compliance with evolving regulations.

These frameworks require the integration of various strategies, including adopting a flexible approach to data storage. Hybrid cloud solutions, where sensitive data is stored on-premise while less critical data is stored in the cloud, are gaining traction as a way to balance operational efficiency with the need for compliance.

However, as Dey explains, this approach brings about complexities in managing distributed infrastructure and maintaining secure global data flows. In a world where data is the lifeblood of business, companies must adopt adaptable IT strategies that meet regulatory requirements without impeding business goals.

Innovative Strategies: Navigating the Data Sovereignty Landscape

To address these challenges, organizations are adopting cutting-edge strategies:

1. Hybrid Multi-Cloud Solutions: Hybrid multi-cloud models are the cornerstone of data sovereignty strategies. These systems combine on-premises data storage with cloud services, allowing sensitive data to remain local while less critical workloads leverage global cloud platforms.

The hybrid multi-cloud model is increasingly becoming a cornerstone of data sovereignty strategies, especially for organizations balancing global operations with local compliance. Ranjit Metrani, President of Managed Services at CtrlS Datacenters, underscores its importance.

“With 44% of Indian companies adopting hybrid multi-cloud strategies, managing seamless data rebalancing across diverse environments is a growing priority,” Metrani shares. He explains that CtrlS combines centralized governance frameworks with tools like data fabric to enhance data quality, compliance, and accessibility. These frameworks allow businesses to exert granular controls over data lineage, storage, and retrieval while unlocking real-time insights for operational efficiency.

The hybrid multi-cloud approach also offers scalability and resilience, enabling organizations to securely manage distributed data while complying with local regulations. CtrlS Datacenters helps businesses implement robust governance policies and track data across its lifecycle, ensuring compliance without sacrificing agility or innovation.

2. Sovereign Clouds: Cloud providers like AWS, Oracle, and Microsoft are building region-specific “sovereign clouds” that adhere to local regulations.

Capabilities of Sovereign Clouds:

•            Data Localization: Ensures compliance with national regulations.

•            Encryption: Advanced encryption protects data from unauthorized access.

•            Access Controls: Strict policies govern who can access data and under what conditions.

However, scalability remains a challenge, as sovereign clouds currently lack the global infrastructure of traditional hyperscalers.

3. Privacy-Enhancing Technologies (PETs): Technologies such as differential privacy, federated learning, and homomorphic encryption allow organizations to analyse data without compromising its security or sovereignty.

Use Case: AI and Generative Models

Generative AI models require vast datasets for training, raising sovereignty concerns. PETs enable businesses to use sensitive datasets while complying with privacy regulations.

4. Regulatory Technology (RegTech): Automation tools streamline compliance with localization laws and evolving mandates.

Capabilities of RegTech Tools:

•            Compliance tracking and reporting.

•            Automated workflows for adapting to new regulations.

•            Error reduction in governance practices.

Rishi Agrawal, CEO of Teamlease Regtech, highlights the value of these tools in managing compliance costs, especially in regions like India with strict localization laws.

5. Zero-Trust Architectures: As hybrid and multi-cloud infrastructures proliferate, organizations are adopting zero-trust principles to ensure security. This “never trust, always verify” approach minimizes risks by requiring constant authentication and limiting access privileges.

Key Features of Zero-Trust:

Real-time threat detection with AI and machine learning.

Least-privilege access controls.

Continuous monitoring and authentication.

The future of data sovereignty lies in balancing stringent compliance requirements with operational efficiency. By leveraging tools like RegTech, hybrid multi-cloud environments, and zero-trust architectures, businesses can navigate the complexities of data localization while maintaining global competitiveness.

Geopolitical Implications

Data sovereignty is no longer just a technical or regulatory issue—it has become a geopolitical strategy. For instance, tensions between the US and China have led to heightened scrutiny of data sharing and storage practices. Similarly, India’s focus on data localization aligns with its broader vision of becoming a self-reliant digital economy, as seen in initiatives like the Digital Personal Data Protection Act, 2023.

Strategies for Organisations

Organizations must adopt a proactive approach to navigate this evolving landscape:

Implement Multi-Cloud Solutions: A multi-cloud strategy allows businesses to diversify their storage and computational resources across multiple jurisdictions, enhancing both resilience and compliance.

Invest in Privacy-Enhancing Technologies (PETs): Techniques like differential privacy, federated learning, and homomorphic encryption can help organizations process and analyze data without compromising sovereignty.

Collaborate on Industry Standards: Participation in international frameworks like GAIA-X can provide businesses with tools to ensure compliance and secure data sharing.

Future Outlook

The challenges of data sovereignty—spanning localization laws, security concerns, and evolving compliance mandates—are undeniable. However, the insights shared by industry leaders show that these hurdles can be addressed through a combination of robust governance frameworks, advanced technologies, and a commitment to ethical data handling.

As businesses navigate this evolving landscape, the key to success lies in adopting flexible, adaptive strategies that meet regulatory requirements while fostering innovation and trust. Whether through hybrid multi-cloud solutions, RegTech automation, or zero-trust principles, the road to responsible data governance is paved with opportunity for those willing to invest in the future.

As nations and corporations embrace data sovereignty, several developments are anticipated:

•            The emergence of more comprehensive sovereign cloud solutions, with enhanced capabilities and scalability.

•            Increased collaboration between governments and the private sector to establish standardized data sovereignty frameworks.

•            A growing emphasis on data ethics and AI governance as regulatory bodies like the EU take the lead in enforcing transparent and responsible practices.

By aligning their strategies with the principles of data sovereignty, organizations can not only mitigate regulatory risks but also gain a competitive edge in an increasingly digitized world. As this landscape continues to evolve, collaboration, innovation, and compliance will be the cornerstones of success.

Data sovereignty is no longer just about compliance—it’s about trust, innovation, and economic resilience. By adopting hybrid multi-cloud solutions, leveraging privacy-enhancing technologies, and committing to ethical data handling, organizations can navigate the complexities of data sovereignty with agility and foresight.

As the regulatory landscape continues to evolve, success will hinge on collaboration, adaptability, and the responsible use of emerging technologies. Data sovereignty may present challenges, but it also offers a unique opportunity to build a more secure, transparent, and resilient digital ecosystem.