A clash between globalised financial services and domestic governments is looming. Activity by the US authorities particularly – from spying on friendly foreign governments, to aggressively pursuing sanction breakers and tax avoiders domiciled overseas – risks fragmenting globalised industry into regionalised pockets of influence and jurisdiction.

Angela Merkel, the German Chancellor, has talked of the building a European communication network as a response to US spying on European governments and industry. In July 2014, work will begin on the Latin American leg of an undersea cable that will allow Brazil, Russia, India, China and South Africa (BRICS) to bypass US networks when communicating between Europe, Asia, Latin America and Africa.

Such separation would be welcome for those banks seeking to bypass US sovereign systems; the assertive stance adopted by US regulators against banks who have transgressed US laws has meant that several can't risk putting a foot wrong in America's jurisdiction. 

However a recent Wikileak-ed document indicates that an agreement between 22 countries and all European Union members could force countries to allow cross-border movement of financial data. If this draft stands, then its agreement would seem to challenge the regionalisation of data. Firms could be exposed to prosecution in those territories where their data is processed, or find their transactions are exposed to the eyes of government agencies.

Q: What is the Wikileaks document and can it be trusted?

A: It is a draft annex of the Trade in Services Agreement (TISA) that deals with financial services, dated 14 April 2014. TISA is being negotiated to facilitate cross trade of services industry between: Australia, Canada, Chile, Colombia, Costa Rica, the European Union members, Hong Kong, Iceland, Israel, Japan, Lichtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, Republic of Korea, Switzerland, Taiwan, Turkey, and the United States. 

The draft has not had its authenticity challenged.

Q: What does it say about moving data?

A: It says: “No Party shall take measures that prevent transfers of information or the processing of financial information … by electronic means, into and out of its territory, for data processing or … prevent transfers of equipment … necessary for the conduct of the ordinary business of a financial service supplier.”

Q: Why would that be a problem?

A: Data run through the US has been routinely subject to checks by security agencies and other countries have kicked up a fuss about it. The Society for Worldwide Interbank Financial Transactions (SWIFT), the interbank payments network, was for a long time passing data to agencies as a matter of US government policy and as a result the EU insisted that data relating to European transactions was kept in Europe.

Since US national security agencies lost a massive amount of confidential information through the defection of one of their staff, and then were exposed as gathering lots of data on friendly targets, the confidence level in cross-border data transfer is pretty low, as evidenced by recent BRICS and EU reactions.

Q: Are there any protections built in to TISA?

A: Not really, by backing the existing right of parties to protect personal data it does not provide any new protection. Some government agencies have the facility to take data from ecommerce sites and by matching that to financial transaction data, it would be possible to build pictures of individual behaviour without any ‘personal’ details being transferred.

Q: So how could the protectionist vs. liberal approaches to data transfer be balanced out?

A: Either those countries with genuine concerns would pressure firms to use data processor providers in their own region, or politicians would favour economic reality over their protective instincts and hope the public don’t spot the apparent hypocrisy. The document notes that it would not be ‘declassified’ for five years after the close of negotiations. It doesn’t say why that would be necessary for a trade agreement.