The EU’s sovereign cloud race is heating up—but most banks are running in the wrong direction. With geopolitical tensions intensifying, the EU’s Digital Operational Resilience Act (DORA) taking effect in January 2025, and the AI Act close behind, European banks are rushing to localize data and meet regulatory demands.
But sovereignty alone won’t solve banking’s biggest AI challenge. According to RAND, 80 percent of banking AI initiatives fail to reach production.1 The real issue is a lack of enterprise governance, compliance, and resilience. Without these, sovereign cloud strategies risk solving the wrong problem.
What is a sovereign cloud, and why does it matter?
A sovereign cloud ensures that data is stored, processed, and governed entirely within a specific country or region, under local laws and oversight. For European banks, it means compliance with regulations such as GDPR (General Data Protection Regulation) and DORA, protection from foreign jurisdiction, and greater trust in how sensitive data is handled. Sovereignty keeps data under European control.
And it’s not just a regulatory imperative—it’s a fast-growing strategic priority. The global sovereign cloud market is forecast to reach approximately €160 billion by 2028, growing at a CAGR of 36%, according to Gartner.2 This rapid growth reflects rising demand from financial institutions worldwide, including those in Europe, as they seek secure, compliant infrastructure for AI and data-driven innovation.
From compliance burden to competitive advantage
Regulators are tightening the rules from all sides. DORA mandates operational resilience and oversight of third-party providers. GDPR and the Schrems II ruling reinforce strict data localization. Soon, the AI Act will impose even tougher standards for governance and auditability in high-risk AI systems like credit scoring.
For banks, this wave of regulation can feel like a compliance burden. Yet it also presents a chance to differentiate. Institutions that treat sovereign cloud not just as a legal requirement—but as a strategic enabler—will be better positioned to innovate and compete.
Why most sovereign clouds will fall short
Despite the hype, many sovereign cloud strategies won't deliver on the promise. Hyperscalers may offer sovereign regions, but the core challenges of enterprise AI—integration complexity, weak governance, and poor scalability—persist. Cloud-native challengers are agile but often lack the auditability and regulatory credibility needed in financial services. Traditional vendors offer compliance reassurance but struggle to support modern AI workloads.
The result? Banks may achieve sovereignty but still fall short of turning AI into scalable value.
The ingredients for success
To break out of that trap, banks need more than just sovereignty—they need enterprise governance and production-scale AI working in tandem. Governance ensures regulators can trust how that data is handled. And production-scale AI means models don’t just sit in the lab—they drive real outcomes across the business.
This rare combination is where Teradata stands apart.
Why Teradata?
Teradata’s heritage is a major strength in the age of AI. After four decades of running mission-critical systems in highly regulated industries, we’ve built deep trust with regulators and risk officers. Teradata Vantage® delivers true hybrid flexibility, allowing banks to deploy sovereign workloads without vendor lock-in. And unlike providers focused on developer convenience, Teradata is proven at delivering AI in production—with model lifecycle management, seamless integration with banking infrastructure, and query efficiency at scale.
While often overshadowed during the early cloud era by speed and scalability, Teradata’s strengths — governance, auditability, performance, and resilience — are now exactly what banks need to turn sovereign cloud into competitive advantage.
Don’t just comply. Compete.
The sovereign cloud race is on, but success won’t be measured by sovereignty alone. The banks that win will use sovereignty as a springboard for AI that’s compliant, trusted, and scalable.
The clock is ticking. DORA is now in force, and the AI Act will apply to most by 2026, and all by 2027. Every quarter of delay strengthens the competition.
Now is the time to reframe sovereign cloud decisions—not as box-ticking exercises, but as strategic investments in resilience, innovation, and growth.
Talk to Teradata about how sovereign cloud can deliver not just compliance, but competitive advantage.
- RAND Corporation, “The Root Causes of Failure for Artificial Intelligence Projects and How They Can Succeed,” 2024, https://www.rand.org/pubs/research_reports/RRA2680-1.html
- Gartner, “Forecast Analysis: Sovereign Cloud IaaS, Worldwide,” October 25, 2024, https://www.gartner.com/en/documents/5863580