Data Sovereignty vs. Data Residency: 3 Key Differences

Data sovereignty and data residency laws and regulations are key factors in data management. They stipulate how organizations must collect, store, process, and use people’s data, especially in the cloud, where it often crosses national borders. The physical location of cloud servers determines sovereignty and frames decisions related to residency. To manage data properly, it’s important to know the differences between these two concepts.

What Is Data Sovereignty?

Data sovereignty is a government’s right to regulate data within its borders. If an organization collects data in Spain and stores and processes it in the United States, it must abide by the data laws of both sovereign nations. Their laws and regulations guide how the company manages and uses data—especially sensitive information, such as credit card and medical data. For example, the United States CLOUD Act tells organizations how to respond to law enforcement requests for data they’re storing.

More than 100 countries have data privacy and security laws and regulations, making compliance challenging for global enterprises. By knowing their data responsibilities under various regimes, companies can put themselves into a position to avoid stiff penalties. For example, under the General Data Protection Regulation (GDPR), the European Union has the power to levy fines of up to €20 million or 4% of the violator organization’s annual revenues, whichever is higher. According to a 2022 study by data storage provider Scality, 98% of US and European IT departments have data sovereignty strategies in place.

What Is Data Residency?

Data residency refers to geographic location, the country or region where organizations choose to store their data. Their choice often relates to local privacy and security laws. Tight regulations, such as those that restrict companies from moving data from one location to another, can inhibit commerce and/or cause companies to rethink their practices. Some managed service providers are building local data centers to meet the requirements of individual governments. For example, TEAM IM, a New Zealand data management services provider, is building that country’s first locally owned and operated hyperscale cloud to meet relevant regulatory and data sovereignty requirements.

Data residency is often confused with data localization, a different concept which holds that data created within a country must remain there. Some nations merely require that a copy of data reside locally, but others, such as Russia, insist that their citizens’ data be stored in local data centers.

Key Takeaways

• Data sovereignty addresses legal jurisdiction.
• Data residency reflects the geographical location of where data is stored.
• Both ideas stem from data privacy and security concerns.
• As technology, most notably AI, evolves, some organizations are adopting sovereign clouds to more easily address local laws governing data residency, access, and security.

How Do Data Sovereignty and Data Residency Differ?

Data sovereignty is a concept that establishes a nation's right to regulate data within its borders. Data residency is a concept as well, affirming that data sovereignty is rooted in geographical location. But it’s also a material fact: Even cloud databases live on terra firma, in one country or another, and the local government’s laws guide all aspects of data management.

Data Sovereignty

Under data sovereignty, a nation or regional body, such as the EU, regulates data stored within its jurisdiction. Because data sovereignty laws vary greatly from place to place, global organizations must be careful as they store, secure, and use the data they gather. For example, in 2023 the states of Virginia, California, Connecticut, Utah, and Colorado passed strict privacy laws, compelling companies that operate in those states to review and adjust their local data collection and usage practices.

Data Residency

Data residency acknowledges the location of stored data. It’s an important piece of the data management puzzle, guiding how a business might refine its operations and technical capabilities to comply with local laws. For instance, citing data residency requirements, the Reserve Bank of India temporarily restricted American Express, Diners Club, and Mastercard from issuing cards to new customers in that country. Facing such legal challenges, companies may need to make changes to how they manage data, such as instituting tighter policies on transferring data across borders or establishing a chief data protection officer to oversee compliance with privacy and security laws.

3 Key Differences Between Data Sovereignty and Data Residency

People sometimes use the terms data sovereignty and data residency interchangeably. But there are three major differences between them that can influence an organization’s digital activities, including decisions on data storage and regulatory compliance.

1. Scope. Data sovereignty is the legal authority to regulate data. In the United States, for example, both the federal government and individual states have this power. Data residency refers to the physical location where data is stored, determining which government has sovereignty. A data center in Marseille is subject to EU laws as well as those of France because it resides in both jurisdictions.
2. Focus. Under data sovereignty, countries pass laws and regulations governing data storage and management. For example, Brazil’s General Data Protection Law safeguards personal data that relates to racial or ethnic origin, religious beliefs, political opinions, union membership, health and sexual history, and genetics or biometrics. Under data residency, organizations must comply with local data laws or face penalties. In 2023, the Irish Data Protection Commission, acting under Irish and EU laws, levied a €1.2 billion fine on tech giant Meta for illegally sending personal data to the US.
3. Benefit. With data sovereignty, countries have the right to protect the privacy and security of data within their borders. Previously, companies could use personal information largely as they wished, including selling it without consent to third parties to use in advertising. By understanding data residency, businesses know which national laws apply to data management, including standards of data security, access, and usage. It’s a key factor in deciding where to store data, and it points to needed changes in policies and technologies to comply with local laws.

Data Sovereignty vs. Data Residency

Adopt Sovereign Cloud with Oracle

Oracle Cloud Infrastructure (OCI) solutions for sovereignty help organizations address requirements for data location, access, residency, and controls. OCI for sovereignty helps businesses and government organizations, including intelligence, national security, and other agencies, address laws and regulations and secure data by restricting access and operational information flows. Solutions include public clouds in numerous regions, dedicated regions with clouds in customer data centers, EU Sovereign Cloud, and isolated clouds that are disconnected from the internet to gain additional security.

Data Sovereignty vs. Data Residency FAQs

What is the major difference between data sovereignty and data residency?

Data sovereignty concerns the legal authority to regulate data. Data residency concerns the geographical location of stored data, which determines the national or regional body that can claim sovereignty.

Does GDPR affect data sovereignty and residency?

Under GDPR, both the nation where data is stored and the EU have the sovereign right to regulate data. In doing so, member states adhere to GDPR data residency rules protecting privacy and security.

What is the difference between data localization and data residency?

Data residency relates only to where data is stored, its geographical location. Data localization is when governments insist that data can’t leave its borders. In Brazil, for example, certain types of sensitive data must be stored locally.