Understanding Data Residency Laws
With the rapid increase in tech involvement in everyday life, new regulations and laws are now in place. Data Residency laws are one such aspect of this and require companies to store data (sometimes of a particular type). They do this within the borders of their national territory. Personal data is one of the most common data types affected by these regulations along with financial data.
Under these laws and regulations, companies are required to process data within a territory. They then have the option of transferring copies of said data abroad, provided the original remains locally stored for inspection.
Working hand in hand, Data Protection and Privacy laws restrict data transfers and, more often, do not require any data retention anywhere. These regulations state that companies do not have to retain copies of any data, but they may only transfer it if they can provide adequate safeguards and security. If the requirements suffice, this results in an exception where a local copy does not need to be present. As is the prerogative of Data Protection laws, having no additional copies of documents would be the most secure method.
Impact on privacy, security and commerce
As you would expect, Data Residency laws can significantly impact several issues, such as personal privacy, commerce and national security.
Privacy & Data Residency Laws
The protection of each individual’s privacy is a general objective for most data handlers. However, privacy protection is not improved by Data Residency laws every time. This is because it benefits the government of a country to store the data locally, as they can quickly compel access.
National Security and Data Security
The aspect of national security in terms of Data Residency comes from most countries wanting to ensure any sensitive data regarding the country is safe, whether financial, political or anything else that may be of value within their borders. The aim here is to restrict the access of outside entities fully. Unfortunately, such an isolationist mentality concerning cybersecurity can undermine access to technological advances coming from other countries, which could provide massively beneficial solutions.
Critical Businesses and Data Residency Laws
As a result of Data Residency laws, certain companies and businesses have restrictions on the tools they can utilize to improve the service they provide. Critical companies often will need access to cutting-edge cloud computing, machine learning or even just technologies developed and hosted abroad. In many cases, these businesses may have to use less advanced alternatives, resulting in higher costs and less efficiency.
Fundamentally these regulations have an impact on commerce. Local companies can comply with data residency requirements more quickly than foreign competitors because they naturally keep data at headquarters. The evident downfall here is this limits access to new technologies but also limits healthy competition. A roll-on effect is that foreign businesses start to move away from their local dealings.
Another result of this is that outside businesses and companies wishing to do business within the confines of a specific country would have to invest in the infrastructure to do so. This can include establishing their own data storage and data centers within the borders, which, in reality, only slows down the entire process.
In most cases, many countries prefer an open system with a wide range of economic freedoms as the default. Governments can achieve this freedom by implementing ideas such as record retention and more up-to-date Data Security laws. Very few countries have enacted strong Data Residency laws. International treaties, such as the Trans-Pacific Partnership Agreement (TPPA), pressure member countries to refrain from acting in data residency laws or local data centre requirements. They actively promote international cooperation between multiple bodies and enact additional agreements that render Data Residency less relevant.