Overcoming Regulatory Barriers in Data Storage Facilities
In the rapidly evolving landscape of data centre operations, regulatory developments are playing a significant role in shaping the industry's trajectory. Recent trends in the UK and EU focus on energy use, data sovereignty, tariffs, merger control, foreign direct investment, antitrust, securitisation, and broader regulatory observations.
Energy Use and Infrastructure
The boom in AI-driven demand is driving a need for enhanced computing power, larger storage capacity, and advanced cooling solutions. This shift towards liquid cooling systems, particularly for AI workloads, is marked by a notable emphasis on energy efficiency, especially in the UK with its push for Small Modular Nuclear Reactors (SMRs) as a reliable, carbon-neutral power source for data centres. In Europe, large-scale data centre campuses are witnessing significant investment, with companies like Vantage Data Centres committing billions to UK projects.
Data Sovereignty and Privacy Regulation
The UK's Data (Use and Access) Act 2025 aims to reform data protection, providing more flexibility around third-country data transfer adequacy assessments and strengthening the Information Commissioner's Office enforcement powers. The EU continues to scrutinise data reforms, maintaining robust enforcement under acts like the EU Digital Markets Act (DMA), focusing on issues such as consent models and privacy compliance. Both jurisdictions are enhancing transparency and oversight in data use, including tracking technologies, automated decision-making, and electronic communications.
Tariffs, Merger Control, and Foreign Direct Investment (FDI)
Post-Brexit, both the UK and EU have updated their investment review regimes and merger control rules. The EU’s Corporate Sustainability Reporting Directive (CSRD) influences investment decisions by requiring extensive sustainability disclosures starting in 2024-2025, impacting both EU and non-EU enterprises with significant EU activities. The divergence between the two jurisdictions adds complexity to investment and merger regulations, prompting businesses to navigate dual regimes for compliance and approval.
Antitrust and Market Competition
Regulators in both the EU and UK are intensifying enforcement actions against dominant tech platforms, focusing on issues such as ‘consent or pay’ models. Increased competition and regulatory reviews in financial services and technology markets are affecting business strategies and compliance costs.
Securitisation and Financial Regulation
While not specifically detailed for data centres, financial institutions connected to this sector face evolving regulatory frameworks for risk, compliance, and ESG-related disclosures. HSBC’s interim report highlights the influence of changing regulatory, fiscal, and competitive environments as factors shaping strategic risk and investment decisions relevant to infrastructure financing.
Final Observations
The regulatory environment in the UK and EU data centre sectors is moving towards integrated requirements that balance technological innovation, sustainability (energy efficiency and carbon reduction), data sovereignty, and competitive fairness. Enhanced regulatory powers in privacy, combined with sustainability and investment review requirements, demand greater corporate accountability and adaptiveness. The interplay of AI growth, energy transition strategies, and regulatory reforms suggests that future trends will prioritize green energy usage, streamlined cross-border data governance, and rigorous merger and competition oversight.
Operators need to conduct detailed due diligence of supply chain and contractual arrangements with suppliers to assess and evaluate their exposure to tariffs. Cost increases may be passed through to customers through increased rent and service fees, or construction may be delayed pending more certainty on costs and supplier switching. High tariffs and uncertainty create challenges for data centre operators, leading to increased costs for development and operation. The supply shortage for talent in the sector necessitates vigilance against anti-competitive agreements in the labour market. Challenges exist in implementing pan-European asset-based securitisation structures due to different tax obligations and subsidiary disclosing regimes across jurisdictions in the European market. Stakeholders need to consider all applicable regulations from the outset of any investment planning. Merger control, foreign direct investment, and foreign subsidies are key considerations for the industry, particularly due to data centres being considered "critical infrastructure" for national security regulations. Failure to notify a transaction under any of these processes can result in severe consequences.
Investing in technology-driven advancements within data centers, such as the adoption of liquid cooling systems for AI workloads, necessitates careful financial planning due to the focus on energy efficiency and emerging carbon-neutral power sources, like Small Modular Nuclear Reactors (SMRs). The finance industry should stay abreast of regulatory developments, given the growing need for transparency and corporate accountability in data sovereignty, privacy, tariffs, merger control, foreign direct investment (FDI), antitrust, securitisation, and broader market competition considerations.
