DeepSeek: Global concerns over data residency and governance

What happens when a company fails to disclose where it stores user data? The answer is simple: it faces regulatory scrutiny, potential bans and a loss of public trust. This is precisely the situation facing DeepSeek, an artificial intelligence firm that has come under increasing criticism for its data residency and data governance practices.

Multiple nations have raised concerns over how DeepSeek handles user data, particularly regarding its storage on Chinese servers. These concerns have led to official restrictions in various countries, highlighting the increasing global focus on data security and sovereignty.

Governments and cybersecurity experts fear that companies operating under opaque data management policies may inadvertently expose users to surveillance, cyber threats and foreign influence.

As more nations introduce stringent data protection laws, the DeepSeek controversy underscores the urgency for businesses to adopt clear and compliant data governance frameworks. This article examines the specific concerns surrounding DeepSeek, the international regulatory actions taken in response and the broader implications for companies handling user data across borders.

DeepSeek’s data residency in China and data governance: Risks and global concerns

One of the most contentious aspects of DeepSeek’s operations is its storage of user data on servers located in China. This issue has drawn significant attention from regulatory bodies worldwide, particularly in regions where data sovereignty and privacy laws are stringent.

A core concern is China’s national security laws, which require technology firms operating within the country to share data with government authorities upon request. This has led to fears that user information collected by DeepSeek could be accessed by Chinese officials without the knowledge or consent of those affected.

The situation has been exacerbated by the lack of transparency surrounding DeepSeek’s data management practices. Reports indicate that the company collects and stores data from users in the United States, Europe and other regions without clearly informing them about where their information is processed. This raises questions about whether users can maintain control over their personal data, particularly under legal frameworks such as the General Data Protection Regulation (GDPR) in the European Union.

Cybersecurity analysts have warned that data stored on Chinese servers may be subject to government surveillance, even if the company does not explicitly facilitate such access. According to a report by The New York Post, security experts argue that businesses operating in China have limited ability to refuse governmental data requests, making it difficult to guarantee the privacy of user information. 

Additionally, concerns have been raised about data security standards in China, particularly regarding how well protected user information is against cyber threats and breaches. Some Western governments worry that allowing Chinese firms to handle large amounts of sensitive data from foreign users could pose risks to national security, particularly if this information were to be exploited for intelligence-gathering or commercial advantage.

A further complication is data portability, users who wish to remove their personal information from DeepSeek’s platform may face significant challenges due to differing legal requirements between China and other jurisdictions. Unlike in regions such as the EU, where the right to data deletion is legally enshrined under GDPR, Chinese regulations provide less clarity on how foreign users can exercise similar rights.

These factors have led to increasing pressure on governments, regulatory bodies and private organisations to reconsider whether businesses like DeepSeek should be permitted to handle the data of citizens outside of China. As scrutiny intensifies, it is likely that more countries will introduce restrictions or demand greater transparency before allowing Chinese technology firms to operate within their borders.

DeepSeek’s Data governance and data security risks

Beyond data residency concerns, DeepSeek’s governance structure has come under examination for its handling of user data, cybersecurity protections and compliance with regulatory frameworks. Effective data governance involves clearly defined policies on how data is collected, stored, processed and protected from unauthorised access.

Key issues with DeepSeek’s governance model include:

• Unclear data access policies: It remains uncertain who within DeepSeek, or any affiliated entities, has access to user data and whether safeguards are in place to prevent unauthorised use.
• Regulatory compliance gaps: While DeepSeek claims to comply with relevant data protection laws, it has not explicitly outlined how it meets the legal requirements of different jurisdictions where it operates.
• Cybersecurity concerns: There is limited public information on whether DeepSeek encrypts user data, protects against breaches, or has contingency plans for security incidents.

Several cybersecurity experts have warned that AI models processing large-scale user data must be governed by strict security protocols to prevent data leaks, unauthorised access and misuse by third parties. If DeepSeek fails to meet such expectations, it risks regulatory action and erosion of user trust.

International regulatory actions: Growing scrutiny and restrictions

As concerns over DeepSeek’s data storage practices and governance continue to mount, several national and regional authorities have taken concrete steps to regulate or restrict the use of the platform. Governments are increasingly prioritising data sovereignty and national security, particularly in cases where sensitive information may be subject to foreign oversight.

The response to DeepSeek’s operations has varied between outright bans, regulatory investigations and legislative discussions, highlighting a broader trend of governments tightening controls on technology firms that process data across multiple jurisdictions.

Italy: A strong stance against non-compliant data transfers

On 31 January 2025, the Italian Data Protection Authority (Garante per la protezione dei dati personali) became one of the first European bodies to take decisive action against DeepSeek. The regulator blocked access to the platform within Italy, citing non-compliance with the General Data Protection Regulation (GDPR) and concerns over the unregulated transfer of data to China.

The Italian watchdog stated that DeepSeek had failed to provide adequate transparency regarding how it processes and safeguards user data. Officials highlighted that the company had not clearly outlined:

• Where personal data from Italian users was being stored,
• Who had access to this data and
• Whether adequate safeguards were in place to prevent foreign interference.

Given that GDPR requires companies to demonstrate accountability in their handling of European citizens’ data, the lack of clarity around DeepSeek’s data flows raised red flags. Italian authorities stressed that similar actions could be taken against other AI and cloud-based services that fail to meet compliance standards.

Taiwan: Concerns over cybersecurity and foreign influence

On 3 February 2025, the Taiwanese government announced an immediate ban on DeepSeek across all governmental institutions. Authorities cited risks that data collected by the platform could be exploited for surveillance or used to shape political narratives through information control.

Given Taiwan’s geopolitical situation, officials have remained particularly cautious about foreign technology platforms that could pose cybersecurity threats. The ban is part of a broader national policy aimed at minimising reliance on technology linked to mainland China, following similar restrictions placed on telecommunications infrastructure and software applications in recent years.

Taiwan’s Ministry of Digital Affairs further warned that allowing DeepSeek to operate within government systems could create vulnerabilities that might be exploited in cyber-attacks. Experts noted that restricting AI systems with opaque data handling processes is becoming an increasing priority for nations concerned with data security and information integrity.

United States: Heightened national security concerns

On 2 February 2025, Texas became the first US state to introduce a ban on DeepSeek’s use within government devices. Lawmakers argued that the platform posed a national security risk, particularly regarding its data-sharing policies and the potential for unauthorised access by foreign entities.

The Texas ban is part of a wider movement in the United States aimed at scrutinising Chinese-owned technology platforms, following previous actions against applications such as TikTok and Huawei’s network infrastructure. Legislators in Washington have since called for a federal review into whether DeepSeek should be allowed to continue operating within US markets.

National security experts have warned that permitting a platform with unclear data governance policies to handle sensitive user information could expose both individuals and government agencies to risks, particularly if foreign intelligence bodies were to access stored data. As discussions continue, it remains possible that federal-level restrictions may follow Texas’s decision.

The European Union: Calls for a unified approach

Beyond Italy, other EU member states are increasingly aligning themselves with stricter enforcement of GDPR provisions. Regulators in France, Germany and the Netherlands have expressed concerns about DeepSeek’s practices, though no formal bans have yet been issued.

In response to the growing concerns, members of the European Parliament have urged the European Data Protection Board (EDPB) to assess whether DeepSeek complies with GDPR and whether a coordinated EU-wide response is necessary.

The European Commission is also reviewing its policies on AI-driven platforms and cloud-based data services, with proposals in discussion that could introduce stricter regulations on companies handling European citizens’ data outside the bloc. Given that GDPR mandates clear legal frameworks for international data transfers, DeepSeek’s opaque policies could eventually lead to broader enforcement actions across multiple EU countries.

Concerns over censorship and misinformation

Beyond the significant issues related to data residency and governance, DeepSeek has also been criticised for its handling of information, potential censorship and bias in content generation. The platform's behaviour has led to growing concerns that it may be actively restricting certain topics or filtering information in a way that aligns with government-imposed content controls. Investigations have found that the platform avoids answering questions about events such as the Tiananmen Square massacre or the human rights situation in China.

A CNN analysis highlighted that DeepSeek appears to be designed to comply with censorship rules imposed by the Chinese government, raising concerns about its use in democratic nations that value free access to information. 

Consequences for DeepSeek

As scrutiny over DeepSeek’s data residency and governance policies continues to intensify, the company is facing significant regulatory, financial and reputational consequences. The growing number of bans, investigations and policy changes in multiple countries is placing DeepSeek under increasing pressure to demonstrate compliance with international data protection standards.

1. Regulatory and legal scrutiny

One of the most immediate consequences for DeepSeek has been the legal and regulatory backlash from multiple governments. The bans imposed in Italy, Taiwan and Texas suggest that regulatory authorities are taking pre-emptive measures to limit the platform’s influence before further risks emerge.

Regulatory bodies, particularly in the European Union and the United States, are now investigating DeepSeek’s compliance with existing data protection laws, which could lead to:

• Financial penalties for non-compliance with data privacy regulations, particularly under GDPR in Europe.
• Further regional bans if the company is unable to provide clear data governance policies.
• Legal obligations to disclose where and how user data is processed, which may impact DeepSeek’s business model.

In the United States, lawmakers have called for a full-scale federal review of DeepSeek’s operations, which could result in tighter restrictions or a nationwide ban if the company is found to be handling sensitive data in ways that pose national security risks. Similarly, the European Data Protection Board (EDPB) has been urged to examine DeepSeek’s compliance with GDPR, which could trigger wider regulatory actions across the bloc.

2. Loss of market access and financial repercussions

DeepSeek’s ability to operate internationally is now under serious threat, particularly as more countries consider restrictions on its services. The bans already imposed have created an uncertain future for its expansion into Western markets, which could lead to:

• Reduced investor confidence as regulatory challenges increase.
• Limited adoption among corporate clients who prioritise compliance with strict data protection laws.
• Potential loss of major revenue streams if further restrictions are introduced.

A significant consequence of increasing regulatory barriers is that DeepSeek may struggle to compete with AI platforms from the United States and Europe, which operate under clearer governance frameworks. Tech firms that rely on DeepSeek’s AI models or services may also reconsider partnerships, fearing regulatory complications.

3. Damage to reputation and public trust

Reputation is one of the most critical assets for AI-driven companies, particularly those handling large amounts of user data. DeepSeek’s lack of transparency regarding data residency has raised public concerns over privacy, censorship and potential surveillance risks.

As a result, users in regions where DeepSeek remains operational may begin questioning whether their personal data is truly secure. A loss of user trust could have long-term effects, including:

• A decline in active users and engagement as individuals opt for alternative AI platforms with clearer data protection policies.
• Diminished credibility among businesses that require AI solutions but prefer providers that comply with global regulations.
• Increased scrutiny from consumer advocacy groups, which could lead to more legal complaints and public pressure.

In countries where DeepSeek is still available, potential customers may hesitate to adopt the platform due to growing concerns about its links to China’s cybersecurity laws and government oversight. This perception could make it difficult for DeepSeek to expand into new markets without first addressing transparency issues.

4. Need for governance reforms and compliance adjustments

In response to mounting pressure, DeepSeek will likely need to take immediate steps to reform its governance structure and introduce greater transparency in its data handling practices. To remain competitive and regain trust, the company may need to:

• Relocate or decentralise data storage to ensure compliance with local regulations in different regions.
• Disclose clear and verifiable policies on how user data is processed and protected.
• Engage with regulators to demonstrate its willingness to adapt to international standards.
• Implement stronger cybersecurity frameworks to prevent potential breaches and misuse of stored data.

However, whether DeepSeek can successfully implement these changes remains uncertain. Given that the company operates under Chinese legal frameworks, its ability to comply with Western data protection laws may be significantly restricted by national policies.

Lessons from DeepSeek: The critical importance of Data Residency, Sovereignty and Governance for Businesses

The controversy surrounding DeepSeek’s data residency and governance failures is a stark reminder that businesses across all industries must prioritise data sovereignty, compliance and security. 

DeepSeek’s missteps have underscored the growing importance of data residency laws, the need for robust governance frameworks and the increasing role of regulatory enforcement in protecting sensitive information. Businesses, whether in finance, healthcare, retail, manufacturing, or digital services, must learn from these failures to avoid regulatory scrutiny, loss of consumer trust and operational restrictions.

1. Data Residency is no Longer optional, it’s a compliance imperative

One of the biggest lessons from the DeepSeek case is that data residency, where data is stored and processed, can no longer be an afterthought for businesses. Governments across the world are implementing strict data localisation laws, which require that companies keep sensitive user and corporate data within national or regional borders.

Key takeaways for businesses:

• Know where your data is stored: Failure to disclose this information can result in legal action and restrictions.
• Ensure compliance with regional data storage regulations: Jurisdictions such as the EU (GDPR), UK, China and India have strict data localisation rules that businesses must follow.
• Assess cloud providers carefully: Using global cloud services may mean that data is moved across multiple jurisdictions, which could breach data residency laws.

Industries such as banking, healthcare, government contracting and e-commerce, where data is highly sensitive, must be particularly vigilant about complying with national data residency requirements. Businesses failing to adapt to this new reality of strict localisation laws risk losing access to key markets.

2. Data Sovereignty: Governments are reclaiming control over digital information

The DeepSeek case highlights the increasing role of data sovereignty in global business operations. Governments are reclaiming control over digital infrastructure, demanding that data generated by their citizens remain under their legal jurisdiction.

What businesses must do:

• Understand local sovereignty laws: Nations such as China, Russia and the EU have introduced laws that limit cross-border data transfers.
• Ensure legal agreements align with data sovereignty requirements: Businesses working with international partners must define data ownership rights and legal protections in contracts.
• Minimise unnecessary data transfers: Organisations should store and process data within the country of origin whenever possible to avoid legal complications.

The financial services, energy, defence and digital communication sectors,where governments see data as a national security asset, must prioritise adhering to sovereignty rules to maintain operational stability and regulatory approval.

3. Strong data governance is essential for business longevity

DeepSeek’s failure to demonstrate effective data governance resulted in bans, investigations and reputational damage. Companies that cannot clearly outline who controls their data, how it is managed and where it is processed will face intense scrutiny from regulators, customers and business partners.

Key governance strategies businesses must adopt:

• Implement a formal data governance framework: Define roles, responsibilities and policies for managing sensitive data.
• Ensure transparency in data policies: Clearly disclose data processing locations, storage policies and access controls to customers and regulators.
• Regularly audit and review data handling practices: Organisations must continuously assess compliance with global regulations.

Industries such as pharmaceuticals, cybersecurity, logistics and artificial intelligence, where data governance failures can lead to severe legal consequences, must prioritise robust, well-documented governance frameworks.

4. Regulatory enforcement is intensifying: Companies must adapt or face exclusion

DeepSeek’s experience shows that governments are no longer hesitant to enforce data protection laws. The bans in Italy, Taiwan and Texas demonstrate that regulators are proactively blocking companies that fail to meet data compliance standards.

To avoid similar challenges, businesses should:

• Monitor global regulatory trends: Laws surrounding data residency and sovereignty are evolving rapidly and companies must stay ahead of the changes.
• Engage with regulatory bodies proactively: Instead of reacting to restrictions, businesses should actively collaborate with regulators to shape compliance strategies.
• Develop contingency plans for regulatory shifts: Businesses must have strategies in place in case cross-border data policies change abruptly.

Companies in telecommunications, cloud computing and AI-driven industries, which often deal with complex data storage regulations, must remain especially proactive in navigating international compliance requirements.

5. Consumer trust is built on data transparency

One of the biggest lessons from DeepSeek’s downfall is that customers, businesses and governments demand transparency. Companies that are ambiguous or misleading about how they store and manage data will lose trust.

What businesses must do:

• Make data handling policies clear and accessible: Customers should not have to search through complicated terms and conditions to understand where their data is stored.
• Be upfront about data partnerships and third-party providers: Businesses should disclose who has access to their data and where those partners are located.
• Demonstrate commitment to data security: Users expect companies to protect their information with industry-leading cybersecurity standards.

Industries such as retail, hospitality and digital services, which rely on consumer trust; must ensure that their data transparency efforts align with customer expectations to maintain loyalty and credibility.

6. Businesses must plan for the future of data regulation

The future of data governance and residency laws will only become more stringent. Governments worldwide are increasingly viewing data as a critical national asset and businesses must be prepared for:

• More localisation requirements: Countries will likely introduce stricter laws mandating in-country data storage.
• Higher penalties for non-compliance: Failure to adhere to data residency laws will result in heavier fines and legal restrictions.
• Global regulatory alignment: Organisations must develop a flexible, multi-jurisdictional approach to compliance to remain competitive.

Businesses across all industries must recognise that data sovereignty, governance and security will define their ability to operate globally in the coming years. Those that fail to prepare for these regulatory shifts will find themselves locked out of critical markets.

Conclusion

The DeepSeek controversy serves as a stark warning for businesses operating in a globalized digital landscape: transparency, regulatory compliance and a well-defined data governance strategy are no longer optional, they are essential for long-term viability. As governments worldwide tighten regulations to protect data sovereignty and user privacy, companies that fail to adapt will face mounting scrutiny, legal restrictions and irreversible reputational damage.

To remain competitive and trustworthy, organizations must prioritize compliance with international data protection laws, such as GDPR and ensure clear, verifiable policies on where and how user data is stored and managed. Failure to address these concerns can lead to bans, financial penalties and diminished market access, as DeepSeek’s case has demonstrated.

The question is: Is your business prepared?

As experts in data governance, residency and sovereignty, we help businesses navigate these complex challenges with tailored solutions that ensure compliance, security and market trust. If your organization needs guidance on regulatory compliance, cross-border data strategies or building a robust data governance framework, contact us today.

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