Financial institutions could scale AI-driven services without breaching compliance requirements by adopting sovereign public cloud infrastructure, according to a whitepaper from Microsoft and Core42.
The report, Balancing Innovation and Compliance in the AI Era, addresses how sovereign-enabled public clouds, which keep data within national borders and under local legal control, are being applied across regulated sectors such as banking, healthcare and government.
It argues that financial firms can use these environments to power sensitive workloads – fraud detection, risk modelling and compliance automation – while satisfying data residency mandates from regulators like the Central Bank of the UAE and ADGM.
One of the paper’s key findings is that data sovereignty need not stand in the way of innovation. By embedding controls for encryption, audit logging and policy enforcement within a public cloud platform, institutions can access hyperscale compute for AI without losing oversight of customer data.
The authors cite UAE-based banks already running AI-powered risk analytics on sovereign cloud platforms as evidence that the model works in practice.
Cloud solutions
IDC projects that global spending on sovereign cloud solutions will rise from $133billion in 2024 to $259billion by 2027, with highly regulated industries helping to fuel that growth. In the UAE, public cloud spending is also climbing fast. IDC expects it to grow from $2.95billion in 2024 to $6.47billion by 2028, at a compound annual growth rate of 21.7 per cent.
Among UAE organisations surveyed, 59 per cent identified AI and 52 per cent cloud as their top investment priorities for 2025. According to the data, 53 per cent of UAE organisations are already prioritising tools for governance, risk, and compliance in their cloud strategies, while 60 per cent outlined enhanced data security and privacy as a top benefit of sovereign cloud environments.
The collaboration
The whitepaper forms part of an ongoing collaboration between Microsoft and Core42, aimed at aligning cloud and AI infrastructure with the UAE’s regulatory environment and national digital strategies. Both companies have been working together to develop sovereign public cloud capabilities tailored for sectors that handle sensitive data and operate under tight compliance frameworks.
Sherif Tawfik, chief partnership officer AI and cloud for sovereignty, at Microsoft, commented: “By leveraging Microsoft Azure, we are providing a robust, secure, and compliant cloud infrastructure that empowers UAE organisations to harness the full potential of AI and cloud capabilities to innovate and accelerate their digital transformation journey while ensuring data sovereignty and regulatory compliance.”
Adrian Hobbs, CTO at Core42, also added: “The Core42 Sovereign Public Cloud, powered by Microsoft Azure, which leverages our sovereign control platform, Insight, is designed to meet the unique needs of regulated industries. This initiative aims to enable businesses to achieve their digital ambitions securely and in compliance with regulatory requirements.
“Our collaboration with Microsoft ensures that we provide a cloud environment that fosters innovation while upholding the highest standards of data sovereignty and regulatory compliance. We are proud to contribute to the national journeys towards becoming global technology leaders.”
