Digital Sovereignty – Managing critical dependencies in an uncertain world

Digital sovereignty is no longer a niche compliance topic. For banks, it has become a strategic capability: the ability to understand, control and, where necessary, reverse critical dependencies across data, technology, processes and AI. Getting it right helps institutions preserve resilience, strategic choice and competitiveness in an increasingly volatile geopolitical environment.

Europe’s banks depend on technology providers for economies of scale, ease of operation and speed of innovation. Cloud, software and AI platforms are now deeply embedded in core banking processes. Yet the same dependencies that enable innovation can also create concentration risks, single points of failure and exposure to geopolitical or legal developments outside Europe. In this environment, digital sovereignty is about managing critical dependencies in a disciplined, risk-based way.

Digital sovereignty is not a standalone legal requirement. However, ECB-regulated banks must comply with the revised guide on cloud outsourcing and actively maintain exit plans for critical ICT third-party service providers under DORA. They should also consider broader European initiatives, including the Digital Markets Act, Germany’s revised competition law, the EU Tech Sovereignty Package, the proposed Cloud and AI Development Act, Chips Act 2.0, the EU Open-Source Strategy and emerging AI policy measures. Together, these developments point in the same direction: supervisors and policymakers expect institutions to understand where they are dependent, how those dependencies are controlled and how operational continuity can be preserved under stress.

Consequently, digital sovereignty is becoming a board-level concentration risk topic. It connects operational resilience, outsourcing governance, technology strategy, data protection, AI adoption and geopolitical risk management. The question is no longer whether banks should use global technology platforms. The question is whether they can use them without losing transparency, decision rights, portability and credible exit options for their most critical services..

Digital sovereignty is not about owning and managing technology in-house; it’s about retaining sufficient, risk-based control over critical data, workloads, decision rights and exit options. Key features of an effective sovereignty framework include:

Specific strategy with guardrails setting out expectations for resilience and continuity
Cross-functional coordination across all lines of defence
Decision-making and placement-decisions that’s aligned with governance and risk requirements
Technical and organisational execution, including:
- Robust, flexible Identity and Access Management (IAM)
- Open standards, portability, modularity, and exit strategies
- For banks, digital sovereignty should be treated as a board-level concentration risk topic
Economic sustainability, balancing resilience with competitiveness
Board ownership, clear roles and responsibilities, leadership, and culture

Ideally, banks seeking digital sovereignty would identify a wide choice of competitive, jurisdictional independent providers for every core business function. In reality, avoiding hyperscalers is not only impossible; it’s undesirable, since it would limit banks’ access to AI and other innovative services. The rise of AI further increases the relevance of digital sovereignty. Banks will need to understand not only where data and workloads are hosted, but also which AI models, compute environments, data pipelines and third-party platforms influence critical decision-making and operational processes. A more pragmatic approach is to define a specific placement process that determines where applications and workloads should be deployed based on their requirements, criticality and risk profile. EU-based operations may be appropriate for critical services, but they do not guarantee sovereignty on their own. Banks also need to assess control rights, operational dependencies, support models, access paths, encryption concepts, portability and contractual exit options.

The goal is not to avoid external dependencies or move everything to EU providers, but to ensure that dependencies are understood, controlled and reversible. In practice, this requires a clear placement and classification logic. Banks should classify applications, data and processes by criticality, regulatory sensitivity, data confidentiality, substitutability, dependency risk and exit feasibility. This classification should determine where workloads are deployed, which controls are required and how exit options are maintained across the three key layers of digital sovereignty.

Data – How do we protect it?

How do we manage data access, data storage, and encryption across our entire footprint?
How do we consistently protect sensitive data across multiple providers?

Technology – How do we avoid excessive reliance?

How do we design architecture to reduce dependencies and avoid technology lock-in?
How portable are our workloads across different platforms and providers?

Processes – How do we ensure continuity?

How do we retain the ability to exit a service provider relationship?
How can we maintain operations if a critical provider fails or becomes unavailable?
How do we ensure clear governance and actionable exit strategies?

Identifying tech dependencies is the first step in any pragmatic approach to enhancing digital sovereignty. Most banks will need to perform a deep dive into their data and technology assets, processes and deliverables: Classification-validation of business-critical elements; analyze the new geopolitical risk landscape and reclassify asstes; making informed decisions regarding placement and/or additional hardening; adjusting the current landscape; and introducing new solutions. Using open source selectively to reduce vendor lock-in, while recognising that open source alone does not guarantee digital sovereignty. Open source only strengthens sovereignty if banks have the capability to operate it securely and sustainably. This requires clear ownership, structured patch management, proactive vulnerability management and sufficient operational know-how to maintain, update and harden open source components over their full lifecycle.

For banks seeking a pragmatic approach to enhancing digital sovereignty, seven areas of action to prioritise could include:

Integrating a sovereign view of risk and diversification into business and IT strategy
Creating a sovereign infrastructure for platforms performing critical functions by hardening existing infrastructure and integrating new assets
Analysing SaaS dependencies and interfaces, migrating to infrastructure or providers if needed
Capturing and classifying evolving risks, and developing mitigation plans accordingly
Identifying hardware bottlenecks, building inventory, and sourcing alternatives
Avoiding vendor lock-ins with open-source software
Increase of portability of cloud applications

Digital sovereignty has become a strategic imperative for financial institutions, and the primary driver is no longer regulatory compliance, but geopolitical reality. In the new environment, digital sovereignty is about preserving the ability to act: to keep critical services running, to steer placement decisions and to remain in control of data and decisions regardless of external political developments. Banks that embed this capability into their strategy will be better positioned not only to meet supervisory expectations, but to sustain long-term competitiveness in an increasingly uncertain world.