What is Data Residency? Why Should My Business Care?

If your business collects sensitive customer data, there are many guidelines you must follow. These guidelines include where you store your customer’s data. Data residency, or where geographically you store sensitive data, can impact the laws your data is subject to, including taxation and privacy laws.  

What is Data Residency?  

Data residency is the territory in which a business stores its data, often specified for regulatory or legal purposes. To understand your data residency, you must know what kinds of data you collect and where it is being stored. Often, companies will choose to process and store data locally to comply with the regulations of the country they operate in.  

Sometimes, however, companies will look to move business activities, including processing data, to another country for tax purposes. This may change the data’s residency and, therefore, the regulations that data is subject to.  

Data Residency vs Data Sovereignty vs Data Localization  

Although the terms data residency, data sovereignty, and data localization are often used interchangeably in conversation, each means something different.  

Data Residency is the specific location that data is stored in, not the legal obligations that ensue because of that location. Data residency can also be the act of managing where data is stored to take advantage of different tax laws or regulations. 

Data sovereignty, on the other hand, are the acts of the government in which the data resides. Data sovereignty laws are used to subject the data inside the country’s borders to the laws of that country.  

This distinction is important for your company and customers. Storing your customer’s data in another country may give that government the right to access their data. The right to access your company’s data will differ from country to country. Certain countries have strict data sovereignty laws, so it is important to be aware of the potential ramifications of storing data internationally.  

Data Localization refers to laws that require data created within certain borders to stay within them. Data localization protects both government and individual rights. Data localization laws ensure that individuals maintain the rights their country affords them for their personal data. Without data localization, the protections afforded to the individual the data belongs to could wildly differ based on where your company stores its data. It also allows the country of origin to maintain authority over its citizen’s data. 

If data needs to be used in two separate locations, there are still ways to satisfy data localization requirements. As a good rule of thumb, always keep a copy of sensitive data within the borders of the country of origin. However, keep in mind that some countries are particularly strict. India’s data localization laws, for example, have restrictive guidelines for the storage and transfer of citizens’ personal data. 

Data Residency Issue Examples  

Even if your organization complies with privacy regulations, it does not automatically mean that your company is compliant with residency requirements.  

An example of this would be a company that handles sensitive customer data securely while complying with all US privacy regulations. However, they have two different company locations. Their head office operates in the United States, while a new smaller branch has just opened in England. Sensitive data, like personal information and health records, are sent between both offices for business purposes and are securely stored in both locations. 

However, the data residency has only been specified for the US, and the company has only considered US regulations. All it would take to unearth the noncompliance would be a simple dispute involving the UK office. This could reveal the company’s data residency problem and potentially result in larger issues. Moreover, if the company has not considered European privacy regulations, it could also potentially violate EU privacy regulations. Both of these issues could impact the company’s bottom line and reputation. 

Cloud Data Residency Issues 

Sometimes where your data resides can be a confusing question, especially for data that is stored “in the cloud.” If you use cloud services, the data will be stored in a physical location – a server or data center – determined by the cloud service provider. It is important that the cloud service provider you utilize allows you to know where your data is stored. 

A data-residency-as-a-service provider can help transfer data residency by using worldwide servers. Find a cloud provider that has a wide range of data residency options. Keep in mind that you may have a challenging time maintaining data residency in certain countries, like Russia. 

When it comes to choosing a cloud service provider, remember that flexibility is key. Data residency laws are constantly changing, and you want your partners to be able to keep up.  

Data Residency Requirements  

Data sovereignty and data Localization can get complicated quickly. If you are worried about data residency compliance, keep the following guidelines in mind:  

• Understand where your sensitive data is created and stored. 
• If data is stored in multiple places, keep a copy of the original data stored in the country of its origin.
• Use either an encryption or tokenization platform to secure data before transmitting it between jurisdictions. 
• Store encryption keys locally to keep sensitive data out of the hands of unwanted individuals or governments.
• Keep your data backed up and ensure that those backups are securely stored. 
• If you store data in the cloud, understand how and where your data is stored. Make sure that your cloud partner also follows all the privacy regulations you are subject to.
• Understand which governments may have access to your data and what the laws of that country entitle the government access to.

To secure your data, you must also understand where it is stored and who has access to it. If you store data in multiple countries, be aware of the access those countries are entitled to. By tracking your data’s residency, you can understand the laws your data is subject to. This is key to maintaining compliance with both data sovereignty and privacy laws.  

If you’re looking for a way to securely store and transfer your customer’s sensitive data while maintaining data residency, consider tokenization. TokenEx has data centers in the US and EU to help our clients meet their data residency requirements while keeping their data secure.   

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