Digital sovereignty in the banking industry

Digital sovereignty in the banking industry What is digital sovereignty? The role of open source in supporting digital sovereignty Hybrid multicloud for flexibility and resilience Red Hat: Your cloud, your rules Unlocking the future with sovereign AI The adaptable enterprise: Why AI readiness is disruption readiness About the authors Héctor Arias Armin Warda More like this AI in telco – the catalyst for scaling digital business The nervous system gets a soul: why sovereign cloud is telco’s real second act Keep exploring Browse by channel Automation Artificial intelligence Open hybrid cloud Security Edge computing Infrastructure Applications Virtualization Share A decade ago, neither nations nor financial institutions considered digital sovereignty a top priority, nor was it even relevant enough for a coffee discussion in most cases. Supply chain globalization was the mainstream for most procurement categories, and where and what to outsource was simply a matter of buying the best possible product or service at the best possible price, shaped only by existing sanctions, regulations, and other operational risks, such as having a backup vendor ready for critical supplies. Examples of such a global supply chain with an extremely high degree of specialization: European banks use US hyperscalers US hyperscalers use computer chips manufactured in Taiwan Taiwanese chip manufacturing uses lithographics from The Netherlands Lithographics from The Netherlands use advanced optics from a German company But the world has since changed, with supply chain disruption during COVID and new dynamics on the geopolitical stage. Now, many banks, insurers, and financial institutions want to develop more—if not full—autonomous control of their technology and operations. Sometimes this is driven by the organization's strategy, but in other cases it’s enforced by regulators, as banks’ role in the economy and society raise their criticality beyond their individual business performance. As a consequence, the industry’s mindset has shifted from "globalization by default" to "regionalization or localization when possible. " This is a transformational shift for banking that will likely take years to execute, as technology vendors are everywhere along banks’ value chain and across the entire financial ecosystem, with technology connectivity and interdependence among vendors, partners, and customers. According to the World Economic Forum , countries’ digital sovereignty refers to their ability to control their own digital destiny—the data, hardware, and software they rely on and create. By exclusion, it also means that nobody outside the country’s governance can have control over its data, hardware, and software, no one can access its technology or shut down any of its systems without consent, and no one can work around its regulations. This means the country is not reliant on any third party's willingness to follow its rules, as it’s not technically possible for anyone to take over (or shut down) any critical part of its technology, operations, or data. Applying this at the banking organization level, it’s worth highlighting that sovereignty is not just about data residency (as this has been around for years). It also encompasses the hardware, software, and operations that banks are reliant on and even the governance of those vendors that are critical for a bank’s activity.