Data residency refers to the physical or geographical location where an organization’s data is stored to servers, databases, or data centers.

The internet is global, and data can easily travel across national borders. Because of that, where data is stored and located greatly impacts its compliance requirements and legal exposure. To support this, organizations must understand the privacy, legal, and data compliance implications of storing data.

What Is Data Residency?

Data residency refers to the physical or geographical location where an organization’s data is stored. This can pertain to servers, databases, or data centers.

Regulations that apply to this data, such as privacy laws or data sovereignty laws, are typically determined by the country or region in which the data physically resides. As such, understanding data residency is important for organizations that must comply with local data protection, privacy, and security laws.

Why Is Data Residency Important?

Data residency is important for several reasons:

• Legal Compliance: Different countries and regions have different laws and regulations regarding data storage and data protection. Adhering to data residency regulations is mandatory to avoid legal issues or penalties.
• Privacy Protection: Data residency regulations typically exist to protect the data privacy of individuals and organizations. By storing data in accordance with these regulations, companies can ensure their customers’ data is handled with the utmost privacy.
• Data Security: With correct data residency, companies can significantly reduce the risks associated with cross-border data transfers, including unauthorized access, data breaches, and data loss. Data stored in the country of origin is typically more secure.
• Trust: Customers have more confidence in companies that comply with these regulations, as it demonstrates respect for their privacy and best practices concerning their data.
• Business Continuity: Should a disaster occur, having data localized can facilitate faster recovery as local data centers can focus on the specific needs of their physical area. 

By ensuring data residency, companies can keep data safe, comply with laws, maintain customer trust, and ensure business continuity.

Data Residency Requirements

Data residency requirements can vary significantly depending on the country and the nature of the data. However, below are some general themes seen in various regulations:

• Storage Location: Many countries have laws that require certain types of data to be stored within their own borders. For example, Russia has strict data residency laws that mandate storing Russian citizens’ personal data on servers within Russia.
• Transfer Restrictions: Some jurisdictions have requirements surrounding data transfer across borders. For instance, the EU’s General Data Protection Regulation (GDPR) stipulates that data can only be transferred out of the EU to countries that provide adequate levels of data protection.
• Local Access: Regulations may require that the local government or specific regulatory bodies have access to the data.
• Privacy Protections: Depending on the country, you may be required to provide specific privacy protections for the data you store. These could include practices around data encryption, pseudonymization, or anonymization.
• Data Breach Notifications: Some countries require that you notify the relevant authorities and/or the affected individuals in the event of a data breach.
•  Record Keeping: You may be required to keep records of all data processing activities.
• Consent: In some cases, you might need to obtain explicit consent from the data subjects before storing or processing their data.

Remember, these are generalizations, and the actual requirements can vary widely depending on the specifics of the law in question. It’s always advisable to seek legal counsel before setting up data storage infrastructure in a new jurisdiction.

How Does Data Residency, Data Sovereignty, and Data Localization Differ?

• Data Residency: This refers to the physical location where data is stored. Companies often store data in specific locations due to regulatory requirements or for performance and availability reasons. This concept revolves around the idea that data should remain within the country or region where it was collected or generated.
• Data Sovereignty: It is the principle that data is subject to the country’s laws where it is collected or processed. For example, data stored in the United States is subject to U.S. laws, regardless of the nationality of the person or entity that owns that data. It applies to data stored within a nation’s borders and impacts how data is handled, protected, and stored.
• Data Localization: This is the requirement that all personal data collected on residents of a particular country must also be processed and stored in that country. For instance, Russia has strict data localization laws that require all data about Russian citizens to be stored on servers located in Russia. 
  This often requires multinational organizations to maintain separate databases for different national or regional jurisdictions, increasing data management complexity.

Though these terms are related, they aren’t synonymous. Data residency is about where data is stored, data sovereignty is about the legal jurisdiction over data, and data localization is about data storage and processing. Each of these can have distinct legal and regulatory implications for organizations, depending on where they operate and where their customers are located.

What Are the Benefits of Implementing Data Residency?

• Compliance with Regulations: The prime benefit of implementing data residency is that it helps organizations comply with local data protection and privacy laws such as the GDPR in the EU.
• Enhanced Security: By storing data in specific locations, organizations can take advantage of local security measures, protocols, and standards, thereby enhancing the security of their data.
• Built Trust: Customers may have greater trust in a company that adheres to local privacy laws and regulations, which may increase their willingness to share data and engage with the company’s services.
• Avoidance of Legal Issues: By adhering to local data residency laws, organizations can avoid potential legal disputes, fines, and reputational damage that can arise from breaches of data regulations.
• Better Control: Data residency provides an organization with control over where their data is stored, potentially making it easier to access, manage, and protect.
• Greater Access Speed: Data residency can also impact access speed. When data is stored closer to the users’ location or systems that require it, latency may be reduced, improving performance. 
• Disaster Recovery: Implementing data residency in multiple regions could also aid disaster recovery by storing copies of the same data in different places.
• Trade Advantages: Complying with data residency regulations might provide trade advantages, such as avoiding sanctions or benefiting from certain trade agreements.

What Are the Data Residency Exceptions?  

Data residency has several exceptions, which may vary depending on specific laws or regulations. Here are a few common exceptions:

• Consent: Data may be transferred abroad if explicit consent is obtained from the data subject. GDPR, for example, allows for data transfer if the data subject has provided explicit consent after being informed of the risks.
• Necessity: Some laws may allow transferring data abroad if it’s necessary for the performance of a contract between the data subject and the data controller.
• International Agreements: Agreements such as EU-US Privacy Shield or Standard Contractual Clauses can be used for transferring data between countries with differing data protection regulations.
• Public Interest: Some laws or regulations may allow data to be transferred abroad if necessary for important public interest reasons.
• Legal Claims: Data may be transferred to establish, exercise, or defend legal claims.
• Relevant Codes of Conducts and Certifications: Data transfer abroad may be allowed when data controllers or processors adhere to approved codes of conduct or certification mechanisms.

The specific exceptions applicable can vary for each country or jurisdiction, and organizations should always seek legal advice to ensure they comply with all applicable data residency requirements and exceptions.