The High Stakes of Cross-Border Compliance: A Blank Check for Regulators?

In today’s globalized economy, businesses are increasingly venturing beyond their domestic markets, seeking new opportunities and customers across borders. However, this expansion comes with a significant caveat: compliance with a complex web of regulations that vary dramatically from one jurisdiction to another. If businesses aren’t prepared for cross-border compliance, they may as well be writing regulators a blank check.

The Rise of On-Soil Requirements

As the digital landscape evolves, particularly in sectors like financial services, eCommerce, and digital platforms, many countries have adopted stringent “on-soil” requirements. These mandates require businesses to store and process certain data within a country’s borders, fundamentally impacting cross-border transactions and compliance strategies.

For instance, in India, the Reserve Bank of India (RBI) mandates that financial data collected within the country must remain within its borders. Similarly, China’s Cybersecurity Law enforces strict data localization, requiring critical data to be stored domestically and undergo security assessments before any cross-border transfer. The European Union’s General Data Protection Regulation (GDPR), while not explicitly a data localization law, imposes rigorous rules on transferring personal data outside the EU, creating a challenging compliance landscape for businesses operating internationally.

The Compliance Challenge

For companies engaged in cross-border transactions—whether in payments, logistics, or digital services—on-soil requests present a myriad of compliance challenges. The need to adhere to multiple, often conflicting, regulatory demands can complicate operations significantly. A policy that aligns with one country’s regulations may inadvertently violate another’s, leading to potential fines, operational disruptions, or even loss of access to key markets.

A notable example of this regulatory tension is the conflict between the U.S. CLOUD Act and the EU’s GDPR. While GDPR emphasizes data privacy and restricts sharing personal data with third countries without adequate safeguards, the CLOUD Act allows U.S. law enforcement to compel companies to disclose data, even if stored abroad. This dichotomy forces companies to build redundancy into their compliance frameworks, often resulting in increased operational costs and reduced efficiency.

Strategic Approaches to Compliance

Navigating the cross-border compliance minefield requires businesses to balance local demands with global ambitions. As governments assert more control over their economic ecosystems, multinational companies must adapt to an increasingly fragmented landscape where localization may become a prerequisite for international growth.

With the impending migration to ISO 20022’s universal financial messaging standard in November 2025, banks and payment service providers face the challenge of leveraging this new standard while ensuring compliance with varying on-soil mandates across jurisdictions. This necessitates a strategic approach to compliance that includes:

1. Investing in Regional Infrastructure: Businesses must consider establishing localized data centers or partnerships with local service providers to meet on-soil requirements effectively.

2. Implementing AI-Driven Compliance Management Systems: Leveraging technology can help firms stay ahead of regulatory changes. AI-driven systems can monitor evolving regulations in real-time, alerting companies to potential risks and ensuring consistent compliance across jurisdictions.

3. Building Redundancy into Compliance Frameworks: Companies may need to create country-specific data infrastructures or maintain separate supply chains for certain regions to navigate conflicting regulations effectively.

4. Focusing on Cross-Border Innovation: As highlighted by industry experts, the focus on cross-border innovation should center around solving key frictions—moving money securely, providing transparency throughout the process, and optimizing the economics of cross-border transactions.

The Economic Impact of Compliance Failures

The stakes are high. Faulty cross-border payments cost U.S. merchants approximately $3.8 billion in sales last year alone, according to the PYMNTS Intelligence report “Cross-Border Sales and the Challenge of Failed Payments.” Moreover, 70% of U.S. firms reported higher rates of failed payments in cross-border sales compared to domestic transactions. As businesses increasingly look abroad for new markets and customers, seamless and efficient cross-border payments have become paramount.

Conclusion: Preparing for the Future

As the landscape of cross-border compliance continues to evolve, businesses must prioritize robust compliance strategies and invest in the necessary infrastructure to navigate this complex environment. The migration to ISO 20022 presents both challenges and opportunities, underscoring the need for a proactive approach to compliance that balances local regulations with global ambitions.

In this new era of on-soil requirements, companies that fail to adapt may find themselves not only facing regulatory penalties but also losing their competitive edge in the global marketplace. The time to act is now—because writing regulators a blank check is not a sustainable business strategy.