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Is the UK data centre industry prepared for Br***t?

Wed 3 Apr 2019 | Emma Fryer

Data centres represent complex environments where multiple sectors coexist and a multitude of regulations converge. So how will the most complex challenge in recent UK political history impact the data centre sector? Emma Fryer, associate director of techUK, clarifies Brexit confusion, raises concerns, addresses the risks and hunts for a few silver linings…

Is the uncertainty around Brexit of concern to the data centre sector?

Businesses don’t like uncertainty and data centres are no exception. But in reality it’s the nature of that uncertainty that is generating unease. If it affected the supply of turnips then operators would be relaxed.  

Unfortunately, Brexit generates multiple uncertainties that relate to core business concerns like data flows, trade in digital services, skills, energy costs and other commodity charges, environment and inward investment. In each of these areas, there is a balance of risk and opportunity and a no deal scenario places a very large hippopotamus at the risk end.

And these are only the direct impacts – think of what would happen more broadly to UK corporate health if sterling falls 20 percent (as is deemed likely in a no deal) and the sector starts losing customers as businesses fail?  Moreover, it’s not just the immense scale of uncertainty, it is also the number of potential scenarios that remain on the table and are likely to be unresolved until the last possible moment. Operators cannot possibly prepare for every potential scenario.

How are firms preparing for these outcomes?

Operators have been preparing on two levels – strategically and pragmatically. Strategically, they are trying to ensure that they can continue to service their customers irrespective of location. At a more pragmatic level, companies are seeking assurances from their supply chain to ensure that imports, especially high value, long order book M&E equipment, are going to arrive – and in time.

They are also ensuring that non-UK staff register their residence and continue to be protected. While we are not expecting the lights to go out purely as a result of Brexit, operators are braced for higher energy costs, especially if there are changes to trading arrangements via the interconnects. They are also keeping their diesel tanks topped up, not because we expect interruptions to the supply reaching the market, but in case distribution is constrained by stockpiling.

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What sorts of legislative instruments do data centres have to comply with?

Gosh, where do I start? Data centres are very complex environments where multiple sectors coexist – telecoms, construction, software, HVAC, M&E to name a few. The result is that our facilities have to comply with a smorgasbord of regulations.

Data centre operators struggle to keep abreast of the alphabet soup of obligations imposed upon them, often by mistake – because they do not know the sector exists. Compliance, however, is not optional and while ignorance of the data centre sector is common among policymakers, ignorance of the law is not viewed as an acceptable excuse by regulators. So this complexity is worrying, especially where reputational risk or penalties are severe.

Despite commitments to reduce red tape, the plethora of requirements is increasing, not shrinking.  Even worse, UK government has added lots of bells and whistles to existing legislation (both domestic like carbon reporting, and EU based, like MCPD), increasing the compliance burden at the very moment when businesses need support.

They have also chosen, with spectacularly bad timing, to propose a unilateral Digital Services Tax.

Definition: Standard contractual clauses are standard sets of contractual terms and conditions which the sender and the receiver of the personal data both sign up to. They include contractual obligations which help to protect personal data when it leaves the EEA and the protection of the GDPR.

It’s hard to keep track, but some of the more common compliance requirements for data centres are summarised in TechUK’s Compliance Healthcheck.

How will a no deal scenario impact data flows?

Brexit has led to uncertainty about the future of UK-EU cross-border personal data transfers. Currently, EU and EEA Member States can transfer data between themselves without additional contractual or procedural safeguards protecting personal data because EU membership automatically renders a state adequate as a place to process the data of European citizens. When the UK leaves the EU, those agreements will no longer apply and the UK becomes a third country, one that is not necessarily deemed adequate.

In the absence of a mutual adequacy agreement organisations will need to resort to standard contractual clauses (SCCs). At the moment UK government has agreed that UK to EU data will be allowed to flow freely but EU to UK data flows will depend on businesses agreeing to SCCs. On the plus side, the UK will remain GDPR compliant because the legislation has been implemented in full. Legacy data should not be affected.

Will a no deal scenario risk blighting an already precarious data centre skills gap?

Data centre operators already struggle to access technical and operational skills and depend heavily on recruiting staff from across Europe and further afield: at least one in five people working in data centres comes from outside the UK.

Following the Referendum, we have heard reports that it is harder to attract candidates from elsewhere in Europe and this situation looks set to deteriorate further. If there is a silver lining here is it perhaps that Brexit can act as a catalyst for addressing some of our longer-term skills, talent and migration challenges and forcing us to ask ourselves what a well-designed immigration system looks like. The current system is broken.   

How might a no deal scenario impact trade in digital services?

The UK currently enjoys free trade with the world’s largest market, is a member of the EU Customs Union and Single Market, and benefits from EU level trade agreements with third countries. Leaving the EU without establishing new trade and customs arrangements with the rest of the EU and with third countries leaves us excluded, subject to tariffs on physical goods and non-tariff barriers on services. UK digital services providers are primarily concerned with non-tariff barriers such as standards, rather than tariffs on goods.

Is there any outcome of a no deal that might benefit the UK data centre industry?

It’s hard to say anything positive about a no deal scenario. Personally, I think no deal less likely than a structured exit, primarily because there is no political party prepared to back a no deal – but that doesn’t mean it can’t happen.

Fundamentally though, the answer is “it depends”. It depends on government to a large extent – their choice of priorities, their speed of reaction and their leadership.  It also depends on us as a sector – how well we have prepared and perhaps more importantly, how quickly we can adapt.

Experts featured:

Emma Fryer

Associate Director


Brexit Europe markets regulation
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