Data Residency: Best Practices, Key Differences, and More

Every business decision about data management comes down to three questions: Is it secure? Is it accessible? Is it compliant?

But if you are planning to expand globally, there’s a fourth question you must consider: 

Where does it actually live?

Because what worked in one region might be illegal in another. And while your data keeps moving, regulations keep changing. 

And it’s actually simple (not easy) to avoid adverse consequences, especially if you are doing business in the United States. 

Let’s break down what this data residency means for your operations and how to handle it effectively.

What is Data Residency?

Data residency refers to the physical or geographic location where an organization stores its data. At its core, it’s about where your data lives and the rules that govern its storage location.

For example, when a European company uses cloud services, they need to know if their data is stored within the EU to comply with GDPR requirements. 

Their country’s “data residence” needs to be in the EU only. 

As you can see from the example, when businesses operate across borders and rely heavily on cloud services, knowing exactly where data is stored has become essential for regulatory compliance and risk management. Like the EU, many major markets have specific regulations for data residency.

Also, don’t confuse it with data sovereignty. These concepts, while related, serve different purposes in data management.

Difference Between Data Residency and Data Sovereignty 

When managing data across borders, these two concepts often create confusion. While they’re interconnected, each addresses distinct aspects of data management and compliance. 

Aspect	Data Residency	Data Sovereignty
Primary Focus	The physical location where you store data – a business choice based on preferences, costs, and performance	The legal authority and rights that govern data in its stored location
Main Purpose	Meeting storage requirements	Ensuring legal compliance
Scope	Geographic storage decisions	Legal jurisdiction and control
Business Impact	Infrastructure costs and planning	Legal compliance and governance
Example	US company storing data in US-based servers	Compliance with GDPR for EU citizen data

United States Data Residency Requirements

This more flexible approach contrasts sharply with stricter international frameworks. While the EU’s GDPR or China’s data laws often mandate local storage, US laws generally allow businesses to choose storage locations that make operational sense – as long as they maintain proper security and control.

The Gramm-Leach-Bliley Act (GLBA)

Enacted on November 12, 1999, the Gramm-Leach-Bliley Act (GLBA) sets requirements for financial institutions handling customer data. While the Act doesn’t specify physical storage locations, it creates strict guidelines for data handling and protection.

Financial institutions must protect customer data through specific safeguards, regardless of where the data resides. This includes documenting data storage practices, implementing security measures for data in any location, and ensuring proper controls for data access and transfer. 

The Act requires financial institutions to oversee third-party service providers and their data storage practices, with particular attention to data movement between different locations. When financial data crosses borders or moves between storage systems, institutions must ensure consistent protection levels and maintain clear data location and movement records.

State-Level Data Residency Requirements

While federal regulations provide a baseline, individual states have introduced data protection laws that directly impact residency considerations. 

These state-level requirements often exceed federal standards:

• California (CCPA/CPRA): The most comprehensive state-level framework in the US, requiring businesses to maintain detailed records of data storage locations while giving consumers extensive rights over their personal information. The law mandates transparent data handling practices and implements strict breach notification requirements.
• Virginia (VCDPA): This law focuses on data protection assessments and explicit consent requirements, with specific provisions for sensitive data processing and consumer access rights.
• Colorado (CPA): Emphasizes consumer consent and regular security assessments, requiring businesses to maintain detailed documentation of data processing activities.
• Massachusetts (201 CMR 17.00): Takes a prescriptive approach with specific technical security requirements and mandatory written information security programs.
• New York (SHIELD Act): This law implements robust data security requirements and expands breach notification obligations for companies handling New York residents’ data.
• Utah (UCPA): Provides consumer privacy rights while balancing business interests, with pragmatic compliance requirements for data handlers.

Now that you know the regulations, let’s see what you can do to stay compliant or avoid hurdles down the line, probably before global expansion.

7 Best Practices To Stay Compliant With Data Residency

These best practices will help you build a strong foundation for compliance.

1. Create a central source of truth for all data storage decisions: Develop a comprehensive data storage map that includes locations and business justifications, compliance requirements, and risk assessments for each storage decision.
2. Build compliance into your architecture from day one: Design systems with data residency in mind instead of retrofitting compliance. This includes implementing region-specific data stores, configuring automatic data routing, and building compliance checks into your CI/CD pipeline.
3. Develop clear protocols for data movement across borders: Establish specific processes for when and how data can move between jurisdictions, including approval workflows, documentation requirements, and security measures.
4. Set up automated monitoring for data location compliance: Implement systems that automatically track and alert on data movement, especially for sensitive data that must remain in specific jurisdictions. This includes monitoring cloud provider regions and data center locations.
5. Create a dependency map between data types and regulations: Map every kind of data you handle to specific regulatory requirements and storage constraints. This helps prevent accidental non-compliance and simplifies decision-making.
6. Implement region-specific encryption and access controls: Design security measures that account for different jurisdictional requirements while maintaining consistent protection levels across all locations.
7.  Establish clear processes for handling regulatory conflicts: Develop protocols for situations where different jurisdictions have conflicting requirements, including decision frameworks and escalation procedures.

Most importantly, remember that data residency compliance is an ongoing process, not a one-time project. So, keep reviewing routinely and updated to stay aligned with both regulatory requirements and business needs.

With that said, make sure you are collecting the right and verified data before anything. If you are thinking about how you can verify identities and conduct due diligence across multiple jurisdictions while maintaining data residency compliance, Signzy can solve some problems for you. 

Our comprehensive suite of APIs, including specialized solutions for KYC, KYB, and Identity Verification, are designed with data residency in mind. To learn more, take a demo today.