The conflict between unrestricted data flows and the sovereign right of nations to protect their citizens’ information has given rise to a critical concept: data localisation. This practice mandates that data is stored and processed in its country of origin. It marks a profound transformation in how companies operate, urging businesses to transition from a one-size-fits-all strategy to approaches that are more differentiated and localised.
With 75% of countries now implementing some form of data localisation, businesses are recommended to rethink their strategies. This involves shifting the approach, from a global to a more localised data management process. With the mandates taking centre stage, there are questions on how businesses can not just follow these rules but use them to their benefit!
Before diving into how businesses can adapt to and benefit from these changes, it’s crucial to understand the intricacies of data localisation.
What is Data Localisation?
Data localisation is a regulatory framework that mandates the collection, processing, and storage of data about a nation’s citizens or residents. This framework demands that all such activities must occur within the geographical boundaries of the country.
The data localisation concept is primarily motivated by concerns for privacy, security, and sovereignty, and seeks to ensure that data is subject to local laws and regulations. It thereby provides a mechanism for enhanced control and protection of sensitive information.
For example, there is an online shopping platform, which operates globally. The company collects customer data, including names, addresses, and payment information for transactions.
In response to data localisation laws in Country A, the company sets up a data centre within Country A’s borders to store and process all data collected from its residents. Even if the company wants to analyse sales trends or manage inventory from its global headquarters situated in Country B, the data of Country A’s residents cannot leave the country.
Therefore, any data analysis or processing for Country A’s residents must occur within Country A’s data centre, adhering to its data localisation laws.
Data Localisation Legal and Regulatory Compliance
Although each country has its own motives for enacting data localisation laws, common reasons include protecting personal privacy and ensuring national security. Other common goals include maintaining data sovereignty and supporting local economies through investments in data centres and technology infrastructure.
For instance, laws may require that specific types of data such as personal or financial information, be stored within a country. This facilitates easier access for law enforcement and ensures regulatory compliance, or serves to protect against foreign surveillance and control.
Compliance with these laws involves a deep understanding of the specific requirements outlined in each jurisdiction where a business operates. This may include creating localised data storage and processing capabilities, which can significantly impact the design of a company’s IT infrastructure and its operational strategies.
Some examples of jurisdiction include:
- European Union- GDPR imposes restrictions on transferring data outside the EU unless adequate protection levels are ensured, impacting global companies’ operations.
- India- Mandates like the Reserve Bank of India’s directive require financial data to be stored within the country, reflecting a broader push for data sovereignty.
- China- The Cybersecurity Law mandates storing critical data within China, with stringent controls on data transfer abroad, especially for foreign companies.
Scope of Impact: Entities Under Data Localisation Laws in India
Data localisation laws within India’s jurisdiction span various sectors and entities.
Under the Companies Act 2013 (Section 94), these regulations extend to:
- Every company formed under the Companies Act or preceding legislation
- Businesses in the insurance sector
- Banking corporations
- Electrical service companies
- Any corporation governed by special laws or established by the Central Government.
(Refer to Section 1(4) of the Companies Act for further details.)
- According to the Reserve Bank of India’s Directive 2017-18/153 (dated April 6, 2018), under the Payment and Settlement Systems Act 2007 (PSS Act), these rules apply to:
- Providers of payment systems authorised under Section 4 of the PSS Act. The scope of payment systems includes services related to clearing, payment, and settlement, covering transactions via:
- Credit cards
- Debit cards
- Smart cards
- Money transfers and analogous transactions.
- Providers of payment systems authorised under Section 4 of the PSS Act. The scope of payment systems includes services related to clearing, payment, and settlement, covering transactions via:
(Details provided in Section 2(i) of the PSS Act.)
- As per Paragraph 3(9) of the IRDAI (Maintenance of Insurance Records) Regulation, 2015:
- The regulation encompasses all insurance providers.
Strategic Data Localisation Benefits for Your Business
Given the ongoing changes in the global regulatory landscape, data localisation will become even more strategically significant. This makes it a critical consideration for businesses aiming for long-term success influencing operational efficiency, and market reputation. Below are some common benefits of data localisation:
Enhanced Data Security and Compliance
Data localisation minimises the risk of data breach and cyber-attacks by reducing the distance data travels and the number of jurisdictions it passes through, each with its own set of cyber vulnerabilities. By storing and processing data within the limits of a single jurisdiction, businesses can more easily comply with local data protection laws.
Economic Growth and Local Investment
Data localisation encourages businesses to invest in local data centres and cloud services, fostering economic growth within the region. This investment not only supports the local economy but also creates jobs and prompts technological advancements, further attracting businesses to the area.
Greater Control and Data Sovereignty
Storing data within a country’s borders gives businesses and governments greater control over their digital assets. This control is crucial in safeguarding sensitive information against foreign surveillance and ensuring that critical business and personal data remain under the jurisdiction’s legal protections.
Adapting to Regulatory Changes
Businesses that are proactive in implementing data localisation strategies are better positioned to adapt to new laws and regulations. This ensures ongoing compliance and minimises disruption to the operations.
Implementing Data Localisation: Challenges
The move towards data localisation stands as a strategic adjustment that has the potential to transform how businesses operate, innovate, and compete on the international stage. Yet, there are some challenges in implementing data localisation.
Significant Financial Implications
One of the most daunting challenges is the cost associated with establishing, maintaining, and managing data storage facilities within national borders. This includes not just the physical infrastructure but also the technological and personnel investments needed to ensure compliance with local data handling regulations.
Regulatory Complexity
Data localisation laws vary significantly across jurisdictions, creating a complex regulatory landscape for multinational corporations. Complying with these disparate regulations requires a nuanced understanding of local laws and can result in increased legal and operational complexities.
Operational Efficiency
Storing data locally can impact the operational efficiency of businesses, particularly those reliant on cloud services and global data networks. It may lead to increased latency, reduced speed, and challenges in data management across different regions.
Risk of Data Silos
Implementing data localisation can lead to creation of data silos, where information is segmented and isolated by geography. This fragmentation can impede data analytics, delay global decision-making processes, and limit the ability to leverage data for competitive advantage.
Conclusion
Digital boundaries are endlessly expanding, so protecting data integrity against global threats is imperative for companies everywhere. Data localisation stands out as the secure choice, ensuring data remains within the geographical bounds it originates from.
This practice aligns with strict regulatory requirements, enhancing data privacy and security while safeguarding data sovereignty in a world vulnerable to cyber threats. Through data localisation strategies, businesses gain agility in complying with international data privacy laws, ensuring operational efficiency and data integrity.
Start strengthening your data security with a data localisation strategy that aligns with global standards and local regulations.
