January 22, 2024

Data compliance, cross-border, and data residency requirements for the financial services industry

Data compliance, cross-border, and data residency requirements for the financial services industry

Financial services data compliance is one of the most critical compliance efforts in the financial services industry. This article will discuss the essential privacy laws financial institutions should be aware of, how to stay compliant, and how InCountry can help them stay compliant with all banking data privacy regulations in all countries they operate.

Context of data protection in the banking industry

The sensitive nature of the data handled by financial institutions makes data privacy in the banking sector extremely important. Banks collect, process, and store huge amounts of personal and financial data of their customers. This makes them prime targets for cyber threats and unauthorized access. Below are a few aspects that define the context of data protection in the banking industry:

Adherence to regulatory standards:

Financial institutions operate within stringent data protection regulations and legal mandates. Banks must comply with regulations such as the General Data Protection Regulation (GDPR), the Gramm-Leach-Bliley Act (GLBA) in the United States, and other pertinent regional or national regulations. Meeting compliance obligations frequently entails securing explicit consent for data processing, ensuring transparency regarding data usage, and implementing robust security measures in line with the data privacy laws of the country business operates.

Data encryption best practices:

The standard protocol in the banking sector involves the encryption of sensitive data during both transit and storage. This precautionary measure guarantees that the data remains indecipherable without the appropriate decryption keys in the event of unauthorized access.

Access controls and authentication measures:

Stringent access controls are established to ensure that only authorized personnel can access sensitive information. This is a critical requirement for banks to enhance the protection of customer data.

Ensuring customer privacy:

A key objective of data protection regulations in the banking industry is to ensure the security of customer information. It is imperative for financial institutions to transparently communicate the methods of data collection, processing, and sharing with their clientele. Customers ordinarily possess the entitlement to access their data, rectify inaccuracies, and, under certain circumstances, request the removal of their information.

Protecting sensitive data, including but not limited to social security numbers, financial transactions, and account details, is essential in upholding customer trust. This is similar to consumer data protection laws.

Data governance excellence:

Implementing a robust data governance framework is pivotal in enabling banks to manage and exercise control over their data assets proficiently. This encompasses delineating clear data ownership, incorporating effective data classification protocols, and ensuring adherence to regulatory requirements in data utilization.

Data residency requirements for banking institutions

Data residency requirements for financial service institutions vary across countries, depending on the data privacy laws governing that location. This section will review some of the banking industry data protection standards in Europe, China, and India.

Europe (GDPR)

In Europe, data residency requirements are chiefly regulated by the General Data Protection Regulation (GDPR), a comprehensive data protection law applicable throughout the European Union (EU) and the European Economic Area (EEA). The GDPR establishes guidelines for processing personal data, encompassing provisions related to storing and transferring such data. Although the GDPR does not explicitly prescribe data residency requirements, it imposes limitations on the transfer of personal data outside the EU/EEA.

The following outlines crucial aspects of data residency and transfer obligations for banking institutions in Europe under the GDPR:

  • International data transfers beyond EU/EEA borders:

According to the General Data Protection Regulation (GDPR), the transfer of personal data to countries outside the EU/EEA is explicitly restricted unless there is adequate data protection in the recipient country. The determination of adequacy can be established either through assessment by the European Commission or by implementing suitable safeguards.

  •  Protective measures:

When a banking institution plans to transfer personal data to a country lacking an adequacy decision, it is incumbent upon them to adopt suitable safeguards. These protective measures may encompass the utilization of standard contractual clauses (SCCs), the establishment of binding corporate rules (BCRs), or obtaining explicit consent from the individuals who own the data.

  •  Agreements for data processing:

In instances where banking institutions enlist the services of third-party providers for data processing activities, it is imperative to establish comprehensive data processing agreements. These agreements should explicitly outline the responsibilities of the processor and guarantee adherence to GDPR requirements, ensuring a robust framework for compliance.

  • Data Protection Impact Assessments (DPIAs) obligation:

Banking institutions are obligated to carry out Data Protection Impact Assessments (DPIAs) for processing operations with a foreseeable high risk to the rights and freedoms of individuals. DPIAs should comprehensively evaluate data transfer mechanisms and incorporate safeguards as part of the assessment process. This is a crucial data privacy regulation in the banking sector.

  • Guidance from the European Data Protection Board (EDPB):

The EDPB, an autonomous European entity offering counsel on data protection issues, has released guidelines concerning the proper utilization of standard contractual clauses (SCCs) for international data transfers. These guidelines serve as a valuable resource for organizations seeking clarity on the prerequisites for legally sound data transfers.

China (CSL)

The data residency stipulations for banking institutions in China are predominantly dictated by the Cybersecurity Law (CSL) and other pertinent regulations set forth by Chinese authorities. Enacted on June 1, 2017, the CSL encompasses provisions about the safeguarding and localization of personal information and crucial data.

Here are critical factors to consider regarding data residency requirements for banking institutions in China:

  • Mandatory data localization:

By the Cybersecurity Law (CSL), critical information infrastructure operators, potentially encompassing specific banking institutions, are mandated to store personal information and significant data acquired and generated in the course of their operations within the geographical confines of China. The CSL also delineates specific provisions governing the cross-border transfer of such data.

  •  International data transfers:

The transfer of personal information and crucial data across borders is subject to stringent restrictions. Critical information infrastructure operators must undergo a thorough security assessment conducted by the Cyberspace Administration of China (“CAC”) before transferring such data abroad.

  • Security assessments and DPIAs:

In adherence to the Cybersecurity Law (CSL), operators of critical information infrastructure are obligated to conduct comprehensive security assessments, encompassing Data Protection Impact Assessments (DPIAs), as part of their data processing activities. These assessments extend to aspects such as data localization and cross-border data transfers.

  • Security evaluations for vital network products and services:

The Cybersecurity Law (CSL) incorporates stipulations necessitating a security review for the acquisition of network products and services that could have implications for national security. This evaluation may influence the utilization of specific foreign technologies, and banking institutions must take into account the regulatory mandates when making decisions regarding technology solutions.

  • Standards for Personal Information Protection:

Beyond the Cybersecurity Law (CSL), China has introduced the Personal Information Protection Law (PIPL), offering guidance on collecting, storing, utilizing, transferring, and disclosing personal information. Although the PIPL is widely applicable, it is also crucial for data protection in the banking industry and hence, must be adhered to.

  • Data breach reporting:

Going by the Cybersecurity Law (CSL), operators of critical information infrastructure are compelled to promptly report cybersecurity incidents and breaches of personal information to both the relevant authorities and the affected individuals. Specific reporting requirements are outlined for incidents that pertain to data stored abroad.

Data residency requirements for banks in the United Arab Emirates (UAE):

Several regulations govern data residency requirements for banking institutions in the UAE. However, we will review a couple of them below:

  • Consumer Protection Regulations (CPR) and Standards by the Central Bank of the UAE (CBUAE):

These regulations were issued in 2021 and require Licensed Financial Institutions (LFIs) to store and process all “Consumer and transaction data” within the geographical boundaries of the UAE. This includes sensitive information such as customer names, addresses, financial details, and transaction specifics.

  •  The UAE Data Protection Law (DPL) No. 13 of 2016:

This law applies to all entities involved in handling personal data, including banks, and provides a comprehensive structure for data protection in the UAE. It underscores key principles such as data minimization, purpose limitation, and data security as foundational tenets.

These are some of the major data protection laws, along with their residency requirements business leaders should know. Learn about more financial services compliance laws here.

Banking data protection laws business leaders should know

Data protection laws for financial services companies are a big deal, as non-compliance could lead to hefty penalties. We will discuss these laws on three levels;

  • Global Laws
  • Regional Laws

Global laws

On the global level, we will highlight the Basel Committee on Banking Supervision (BCBS) Data Aggregation Principles. Although these principles are not legally binding, they offer guidance on data aggregation, sharing, and data privacy in the banking sector, emphasizing data security, transparency, and user control.

The Data Aggregation Principles by the Basel Committee on Banking Supervision (BCBS), as outlined in BCBS 239, have the overarching goal of enhancing the risk data aggregation and reporting practices of banks. This improvement is envisioned to bolster risk management, decision-making processes, and the overall resolvability of banks. The principles center on ensuring the accuracy, completeness, timeliness, and consistency of risk data throughout a bank’s various operations.

The Bank for International Settlement has an in-depth resource on this topic.

In addition to global data protection initiatives such as the Basel Committee on Banking Supervision (BCBS) Data Aggregation Principles, financial institutions, particularly those in the banking sector, must also adhere to specific industry standards. One of the paramount regulations in this regard is the Payment Card Industry Data Security Standard (PCI-DSS).

Overview of the Payment Card Industry Data Security Standard (PCI-DSS):

PCI-DSS is a global standard established by major credit card companies, including Visa, MasterCard, American Express, Discover, and JCB. The standard aims to ensure the secure handling, processing, and storage of sensitive payment card data to prevent data breaches and unauthorized access.

Although it is not a law, compliance with PCI-DSS is mandatory for any business that processes, stores or transmits credit card information. It is designed to enhance the security of payment card transactions and protect cardholder information.

Failure to comply with PCI-DSS can result in severe consequences, including fines, increased transaction fees, and suspension of the ability to process credit card payments. Additionally, non-compliance may damage the financial institution’s reputation, leading to a loss of customer trust and business.

For banking institutions, understanding and complying with PCI-DSS is paramount in ensuring the security and integrity of payment card data.

Regional laws


General Data Protection Regulation (GDPR): This regulation establishes rigorous standards for data protection throughout the European Union (EU). It covers concerns such as consent, security measures, and the rights of data subjects. Compliance is mandatory for banks operating within the EU or handling EU citizens’ data. Click here to learn more.

The United States:

Gramm-Leach-Bliley Act (GLBA) and Fair Credit Reporting Act (FCRA): These acts govern the handling of customer financial data and credit information by financial institutions in the United States, respectively.


Asia Pacific Economic Cooperation Cross-Border Privacy Rules (CBPR): This voluntary framework offers guidelines for data privacy and the cross-border flow of data within member economies of the Asia Pacific Economic Cooperation (APEC).

Cross-border data transfer for the banking industry

International data transfer is a crucial element of the worldwide banking sector, facilitating essential activities such as global transactions, fraud detection, and risk management. Nevertheless, this practice presents notable challenges attributed to the ever-changing data protection regulations and concerns surrounding privacy and security. In this section, we will outline the principal issues concerning cross-border data transfer and the issues regarding data privacy in banking.

Challenges in cross-border data transfer for banks:

  1. Data residency requirements: Some countries or regions enforce regulations mandating that financial data be retained within their borders, creating obstacles or outright prohibitions for cross-border data transfers. China, Oman, etc., are examples of countries with stiff data transfer laws.
  2. Legal compliance: Banks encounter complexity and resource-intensive challenges in navigating a diverse array of data protection laws across various jurisdictions to ensure legal compliance.
  3. Transfer mechanisms: Selecting the appropriate mechanism for securely and reliably transferring data while adhering to legal requirements poses a nuanced challenge.
  4. Security and breach risks:  The rise in cross-border data transfers has increased the risk of cyber-attacks and data breaches by hackers.
  5. Loss of control over data: Once data is transferred beyond a bank’s home jurisdiction, there is a potential diminishment of control over how it is processed and safeguarded.

Possible solutions to these challenges:

  • Regulatory acumen: Banks must possess a comprehensive understanding of data protection regulations in their home country as well as the jurisdictions where they operate or engage in data transfers.
  • Robust security measures: Implementing stringent data encryption, access controls, and effective incident response protocols is imperative to safeguard data integrity during the transfer process.
  • Legal transfer mechanisms: Employing approved mechanisms such as standard contractual clauses or relying on adequacy decisions ensures both legal compliance and secure data transfer between different jurisdictions.
  • Data minimization: Adhering to data minimization principles and only transferring essential information can mitigate risks and simplify compliance obligations.
  • Transparency and communication: Maintaining transparency with customers regarding cross-border data transfer practices and promptly communicating any data breaches not only builds trust but also aids in sustaining regulatory compliance.

How InCountry helps banking institutions stay compliant with data protection laws

Staying compliant with banking data privacy regulations across various countries in which a bank operates may become a challenge at some point. These laws keep evolving as different governments keep reviewing their privacy laws periodically. At InCountry, we comply with data privacy laws in the countries where global banks operate. We stay continuously updated with new data laws to ensure that our clients do not have to worry about data security or compliance.

What’s more, our Data Residency-as-a-Service helps us keep your bank data in the country where it was generated and gives you access to that data from anywhere in the world. This alone significantly reduces the need for data transfer.

Our advanced data security protocols and procedures, such as encryptions, access controls, regular security checks, audit logs, etc., ensure that your data and your clients remain safe. 

Contact us to learn more about how we can bring more value to your business through excellent data security.