Addressing the Impact of Data Location Regulation in Financial Services

James M. Kaplan, Kayvaun Rowshankish
Published: Friday, May 22, 2015
Global financial institutions have leveraged the Internet to establish private communication networks and capture efficiencies from global technology. However, in recent years, many countries have issued data location rules restricting how corporations can handle and transmit their customers’ data across borders, including through these private networks. The implications of this new wave of data location regulation are particularly significant for banking. The financial industry has historically been heavily regulated in many ways, such as products offered or capital requirements. As more banking activities, such as data management, come under regulatory scrutiny, the effects are uncertain, but seem likely to be material. In order to provide a context for discussions of governance of the Internet and cyberspace more broadly, executives at a dozen global financial institutions were interviewed and asked about how this complex regulatory environment is affecting financial organizations. The interviews revealed several implications for banks and, more broadly, markets for financial services. For policy makers, understanding the impact on consumers and, where possible, mandating outcomes rather than specific technology configurations, can avoid or limit any unintended consequences for consumers’ access to financial services.