Humans are not the only ones who cross borders; data flows freely, too. Understanding where your data resides and who governs it is becoming increasingly critical.. Governments are introducing tighter regulations to ensure organisations are compliant.
Two terms often used interchangeably, data sovereignty and data residency, have distinct meanings with significant legal and operational implications.
Understanding their differences is crucial for businesses to make informed decisions on where to store their data and how to remain compliant with data protection regulations.
In this blog, we will discuss the differences between the two and explore why they matter.
What is data sovereignty?
Data sovereignty refers to a country's legal authority over data stored within its borders, and sometimes outside its borders if local laws apply extraterritorially.
This means that even if your data is stored in a data centre in another country, it could still be subject to the laws of your home country or, say, the country where the cloud provider is headquartered.
Governments, businesses, and individuals are all stakeholders in data sovereignty, as it affects the security of sensitive data and compliance with various legal and regulatory requirements.
What is data residency?
On the other hand, data residency is more about the physical location where an organisation’s data is stored. This could be specific to the city, region, or country where the data centre is located.
Data residency typically stems from:
- Business decisions, for example, regional performance optimisation
- Contractual obligations with clients or partners
- Legal compliance with local laws that require data to be stored within a specific jurisdiction
For example, a European company using a cloud provider may choose a data centre located in Frankfurt to meet data residency expectations under GDPR.
In short, data residency is about where the data lives, whereas data sovereignty is about who has the legal authority to access and govern that data, regardless of where it is physically stored.
So while data residency is about location, data sovereignty is about control.
Why do the differences matter?
Confusing the two terms can lead to compliance violations, reputational damage, and more, especially for finance, government services and healthcare sectors.
EU's data regulations shaping the future of AI
The EU has adopted a multilayered regulatory approach to digital governance, particularly focused on data protection and operational resilience. The most recent shift centres on the use of responsible AI.
- The General Data Protection Regulation (GDPR) enforces data sovereignty and residency. EU citizens’ personal data must be collected, stored and processed in compliance with EU regulations, regardless of whether it’s handled outside the EU.
- The Digital Operational Resilience Act (DORA) goes a little deeper to ensure financial institutions and their critical ICT providers, including cloud services, maintain operational continuity, data transparency and legal compliance. DORA raises the bar for cross-border data controls and third-party risk management.
- The EU AI Act is a risk-based framework for AI systems that ensures organisations are transparent and accountable for their AI applications. Although this does not solely focus on data residency, the Act reinforces the need for data governance and oversight in AI systems during their development and deployment phase.
Together, these regulations demonstrate the EU’s commitment to digital sovereignty, from the infrastructure, data and AI systems.
The rise of the sovereign cloud
We’re seeing a wave of sovereign initiatives emerge, including France’s Bleu project and Germany’s Gaia-X, as nations prioritise control over their AI infrastructure.
Hyperscalers such as Nscale are building the new wave of sovereign cloud infrastructure. We are strategically launching new initiatives to ensure data residency, legal autonomy and digital sovereignty in the age of AI.
Enterprises and governments alike are making sure that compliance, control, and local accountability are central ton their cloud strategies.
This is why Nscale has designed our cloud platform to ensure we meet the demands of AI and its growing needs, as well as the needs of our customers around digital sovereignty.
Data sovereignty focuses on the legal framework governing data, while data residency is primarily concerned with the geographical location of the data itself.
Where your data resides and who governs it has never been more important. For organisations operating across borders, the ability to guarantee both legal control and geographic certainty is now fundamental. Nscale is purpose-built to close that gap, giving organisations the infrastructure they need to act with confidence, clarity and control.
