Concern over how the data we share on various platforms on a daily basis is being used, also known as “digital trust”, is very prominent. Due to the prevalence of online thefts today, people want to know how their information is being used.
According to a study of Consumers International members conducted in 2016, Latin America has relatively high levels of privacy concerns and concerns about how personal data is acquired compared to all other areas. Consumers very rarely understand and have control over how their data is gathered, kept, and used, according to 70% of respondents from Latin America and the Caribbean.
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What Is the Localization of Data?
The act of physically storing a country’s data solely there and not transferring it to any other country is known as data localization. Data localization requires that the data be collected and processed inside a particular geographic limit in addition to being stored.
In other words, data localization regulations limit the flow of data across international borders. Therefore, depending on the rules in effect, your company might be compelled to preserve consumer data collected in another country as opposed to sending it back home or to another location for processing.
For instance, businesses are required to keep their data secure within the EU as per obligations under the General Data Protection Regulation (GDPR) of the European Union (EU).
Additionally, in accordance with data localization laws, prior to being erased from systems in the data subject’s home country, data pertaining to citizens or residents of a country must be removed from systems in other countries.
What is the difference between data localization, data residency, and data sovereignty?
Data localization, data residency, and data sovereignty are related but distinct concepts that pertain to how data is stored, processed, and controlled within specific jurisdictions. There have been instances where these terms have been used interchangeably. Hence, it is very important to understand the differences between these terms, and quite frankly they are straightforward.
Data localization is the practice of keeping data within certain geographic boundaries and preventing its transfer to any other nation, as was covered in great detail above.
But when it comes to data sovereignty and data residency, there is a clear distinction.
When talking about data residency, it simply means when a nation decides to store its data physically at a location. Data residency can be voluntary or a matter of best practices followed by organizations to comply with data protection regulations, industry standards, or customer expectations. For instance, a company may choose to store its data in data centers located in multiple regions to reduce latency and provide better services to its global customers.
Data sovereignty involves more than just the location of data, it is more of the legal authority of the government over that data and the legalities of it. For instance, the Canadian Consumer Privacy Protection Act (CCPPA) encourages greater transparency about how organizations utilize data including personal identifiers and offers consumers control over their data in Canada.
Residency and sovereignty are essentially identical in nature, however, one is based on geography and the other on the laws and regulations of the country.
The Advantages of Data Localization
There are many advantages to the localization of data, but they depend on the context, scope, and specific needs of a country or organization.
- Data Privacy and Security: Data localization enhances data privacy and security by keeping sensitive information within the borders of a country. This reduces the risk of data breaches and unauthorized access, as the data is subject to local data protection laws and regulations. When talking about data privacy, it is important to also point out the concept of data sovereignty. Data localization allows a country to maintain control over its citizens’ data. This control can be important in cases where data access by foreign governments or entities could raise concerns about surveillance and privacy.
Certain countries have strict data sovereignty laws that require certain types of data to be stored locally. By complying with these regulations, businesses, and organizations can avoid legal complications and potential fines.
- Faster Data Access and Processing: Storing data locally can lead to faster access and processing times, as there is reduced latency in transmitting data over long distances. This can be particularly beneficial for applications that require real-time data processing or low latency, such as financial transactions, etc.
- National Cybersecurity: Data localization can contribute to a country’s overall cybersecurity posture. By keeping critical data within national borders, it becomes less susceptible to cyber threats originating from foreign entities. Keeping data within the country’s borders may simplify law enforcement and investigation efforts when dealing with cybercrimes and other illegal activities that involve data.
- Supporting Local Economy: Data localization may promote the growth of local data centers and related technology infrastructure, which can create jobs and stimulate economic activity within the country. Countries need to set up numerous data centers in order for data localization to be successful. For locals, this will result in job opportunities. Additionally, it will encourage creativity to produce affordable solutions.
- Reputation and Market Standing: By upholding data protections, businesses can utilize data compliance to project themselves as credible resources. Companies are able to boost their reputations by pointing out to their clients that their competitors haven’t adopted data safeguards similar to their own by displaying their data compliance certifications, such as SOC2, ISO 27001, HIPAA, etc. At Kapture, we prioritize protecting the privacy of our customer’s data, so we adhere to all key compliance certifications.
The Disadvantages of Data Localization
Increased Cost & Complexity:
Due to the enormous volume of data that needs to be processed and stored, data localization necessitates the construction of big data centers. Aside from the initial setup, maintenance, and processing involve significant operational costs.
Although it is simple to talk about the building of data centers, the procedure is actually very difficult. especially if data migration from another country is necessary for the localization process. Companies must establish and maintain local data centers or cloud infrastructure in any nation where they conduct business. A more complex IT ecosystem, higher infrastructure costs, and challenges maintaining data consistency across sites are all a result of data localization.
Compliance Challenges For Businesses:
Rules and guidelines for data localization are extremely intricate. Data compliance struggles arise from the fact that not all organizations have the necessary technical resources and infrastructure to comply with regulations. Compliance with various data localization rules is a difficult task for businesses with a global presence.
Each country may have its own distinct set of laws and regulations governing the processing and storage of data, making it necessary to use a lot of legal and technical resources to maintain compliance. The regulatory minefield may be difficult for small and medium-sized businesses in particular to manage.
Limited Access to Data:
Data localization restricts access to data since it might not be readily available to users or businesses in other countries where the data is kept. It essentially prevents information from being shared and accessed easily across different locations.
This can hinder multinational corporations’ capacity to make data-driven decisions based on thorough market knowledge.
International Trade barriers:
Data localization may make it more difficult for businesses to operate internationally or to access data that is housed in other nations, which may result in trade restrictions. This may have detrimental effects on international trade and economic expansion.
The potential for international data collaboration and research projects may be constrained by data localization. Restrictions on data migration might impede advancement and scientific discoveries in industries like healthcare and artificial intelligence, where vast datasets from numerous sources are essential.
Hindered Overall Technological Developments:
Data localization regulations could stunt innovation and foreign investment in the tech industry. Countries may find it difficult to participate in the global digital economy and benefit from emerging technology if they restrict access to international data and information flow. This might then impede technical development and economic expansion.
The external storage of data can be advantageous for a business from a nation where technical advancements are still in their infancy. This gives a business the freedom to decide where, how, and where to store its data. This can be accomplished by utilizing a superior technological offering from a different nation. This won’t be an option if regulations are adopted requiring local storage exclusively of data.
Does data localization ensure privacy?
China, Russia, Saudi Arabia, Turkey, Kuwait, the United Arab Emirates, Uzbekistan, and Kazakhstan all passed new legislation or revisions to existing laws relating to data privacy requirements in 2021 alone.
Currently, data localization regulations are in place in 75% of all nations. These have significant effects on a company’s IT footprint, data governance, data architectures, and contacts with regional regulators. In general, localization regulations are made to stop cybercrimes like identity theft, support local economies by generating jobs, and, probably most importantly, address growing privacy concerns.
So now, the real question is, does localization of data actually ensure privacy?
Data localization alone is not sufficient to address the complex nature of privacy. A solid privacy framework must include effective data protection mechanisms, strong data encryption, appropriate access controls, and transparency in data management.
While keeping all data in one location is a good idea, but, relying only on it to protect privacy is probably not a good one.
An example might make more sense. Even though all the data of a country is stored in one single centralized database, it would not prevent a business from selling data to other parties in the same area, which is a violation of privacy. It wouldn’t even stop unauthorized employees from accessing confidential information.
Data localization is a tool that can be used to enhance and protect privacy, but it is not a stand-alone solution to do so.
Data Localization Around The World
Everyone would be on board with the fact that since the COVID-19 pandemic, there has been a rise in dependency on the internet. As we have already seen, there are just as many advantages to localizing data as disadvantages.
On an international forefront, the GDP of countries, however, is proven to be directly impacted by data transfer limitations, according to an ECIPE study.
Restrictions on data flows are acceptable on the grounds that the government requires access to data in order to carry out its regulatory obligations or sustain security standards.
Below are just a few examples; many more nations have thought about or already implemented data localization policies. Businesses and organizations that operate globally must keep up with localization and data protection laws in order to comply with local laws and stay out of trouble with the law.
In the digital age, finding a balance between data protection and information freedom continues to be difficult. In order to successfully traverse the challenges of data localization, organizations must remain watchful, adapt to new requirements, and create robust data management policies as the landscape of data protection and regulations continues to change.
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