Compliance is Hard

In late 2025, running a business—especially a startup—feels like navigating an ever-growing maze of regulations. What was once seen as necessary safeguards for consumers, data, and the environment has ballooned into a complex web that drains resources, slows innovation, and disproportionately burdens smaller enterprises. Modern compliance isn't just challenging; it's often outright punishing, diverting precious time and money from growth to paperwork and audits.

This regulatory overload is acute in the UK and EU, where stringent rules on data protection, AI, sustainability, and digital services create overlapping obligations. While large corporations can afford dedicated compliance teams, startups and SMEs struggle to keep up, risking fines, market exclusion, or outright failure. Below, we delve into how this burden stifles businesses, with real-world examples from the UK and EU, and explore practical strategies to manage it—including smarter approaches to building employee competence. That said, there are glimmers of hope: recent EU initiatives are starting to address the overload through targeted simplification.

The Crushing Weight on Startups and SMEs

Startups operate on thin margins and limited resources. Compliance costs eat into these disproportionately: studies show small businesses spend up to 69% more per employee on regulatory adherence than larger firms. For early-stage companies, this can mean diverting funds from product development, hiring, or marketing—core activities that drive growth.

In the EU, high-level reports like those from Mario Draghi and Enrico Letta have highlighted how excessive regulation hampers competitiveness, with over 60% of companies viewing it as an investment obstacle. SMEs flag administrative burdens as their top challenge. Post-Brexit, UK businesses face dual hurdles: retained EU-derived rules plus new domestic ones, plus trade frictions that add customs declarations and origin checks.

Consider fintech startups: They grapple with DORA (Digital Operational Resilience Act) in the EU, requiring rigorous risk management and reporting, alongside UK-specific fraud prevention rules. These can delay product launches and scare off investors wary of regulatory risks.

Key Examples: Regulations That Stifle Innovation and Growth

GDPR and UK GDPR: A Persistent Drain

Since 2018, GDPR (and its UK counterpart) has imposed heavy data protection requirements. Compliance costs for SMEs range from tens of thousands to millions annually, covering legal reviews, tools, and training.

For startups handling EU or UK user data, this diverts R&D budgets—studies link GDPR to reduced profitability and lower venture capital inflows into European tech. Smaller firms, lacking in-house experts, often pause expansions or limit features to avoid scope creep.

AI Act in the EU: High Hopes, Heavy Burdens

The EU AI Act, phasing in through 2025-2026, classifies systems by risk and demands conformity assessments for high-risk AI. While aimed at ethical AI, it requires startups to invest heavily in documentation and testing, delaying market entry.

Critics argue this stifles innovation, pushing talent and investment toward less regulated regions like the US. In contrast, the UK's principle-based approach offers more flexibility, but divergence means dual compliance for cross-border operations.

Sustainability and Due Diligence Rules

The EU's Corporate Sustainability Due Diligence Directive (CSDDD) and related reporting rules mandate supply chain checks for human rights and environmental impacts. For UK exporters, post-Brexit rules plus EU requirements add layers, with small exporters reporting paused EU trade due to "red tape."

Digital and Operational Resilience

The EU's DORA (effective 2025) demands fintechs manage ICT risks rigorously. In the UK, rising employer costs and cyber resilience bills compound pressures. These overlap, forcing startups to build redundant systems.

Overall, regulatory fragmentation has reduced firm entry and competition—fewer new businesses mean less innovation.

The Broader Toll: Lost Innovation and Competitiveness

Europe lags in unicorns and AI leadership partly due to this burden. The "Brussels Effect" sets global standards but at home, it chokes domestic startups. UK firms, once benefiting from single-market access, now face export barriers and talent shortages.

Regulatory hurdles rank among top startup failure causes, trailing only market fit issues.

Recent Positive Steps

While the burden remains heavy, 2025 has brought some encouraging developments in the EU, responding to calls from the Draghi and Letta reports for better competitiveness. The European Commission has launched a major simplification drive, including multiple "Omnibus" packages adopted or proposed in recent months:

• Digital Omnibus (November 2025): Targeted amendments to the AI Act, GDPR, and related laws extend simplifications (like reduced documentation) to small mid-cap companies, tie high-risk AI enforcement to available standards, and streamline reporting. It also simplifies cookie consent and cybersecurity notifications.
• Food and Feed Safety Simplification (December 2025): Aims to cut overlapping rules, saving businesses and administrations billions annually.
• Sustainability Adjustments: Earlier packages delayed CSDDD/CSRD timelines and narrowed scopes to focus on largest firms, providing breathing room for SMEs.
• Broader Goals: The Commission targets 25-35% reductions in administrative burdens, with annual progress reports and stress-testing of rules.

These moves, while controversial in some quarters for potentially weakening protections, are welcomed by business groups as steps toward a "simpler and faster Europe" without full deregulation. In the UK, post-Brexit reforms continue to emphasize growth, with regulators easing certain reporting and capital rules.

Strategies to Manage the Burden Without Breaking the Bank

Compliance is non-negotiable, but smart approaches can reduce the pain—especially as these simplifications roll out:

• Prioritize and Outsource: Focus on high-risk areas first. Engage fractional experts or RegTech tools for automation—many offer startup pricing.
• Leverage Technology: Use compliance software for monitoring changes and automating reports.
• Build a Compliance Culture Early: Embed it via clear policies and join industry groups for updates.
• Integrate Microlearning for Competence Development: Ongoing training is mandatory for many regs. Microlearning delivers bite-sized (5-10 minute) modules via apps: quick videos on data breaches, quizzes on AI ethics, or scenarios for due diligence. This fits busy workflows, boosts retention (up to 50% better), and tracks progress for audits—turning training from a chore into an agile tool.
• Advocate and Adapt: Monitor ongoing simplifications and consider regulatory sandboxes for innovation.

Conslusion

Modern compliance is undeniably hard, often feeling like an unfair tax on ambition. By treating compliance strategically—prioritizing risks, automating, and using tools like microlearning—businesses can mitigate the damage. In a world where trust wins customers, efficient compliance can differentiate you.

For UK and EU enterprises, especially startups, the key is agility: comply smartly, innovate boldly, and push for even smarter regulation. With these positive shifts underway, the regulatory pile-on may finally be easing—helping Europe and the UK regain competitive ground.

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References

Draghi, M. (2024) The future of European competitiveness. European Commission. Available at: https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en

Food and Drink Federation (2025) 2024 Trade Snapshot: UK food and drink exports. Food and Drink Federation. Available at: https://www.fdf.org.uk

Jia, J., Jin, G.Z. and Wagman, L. (2021) 'The short-run effects of GDPR on technology venture investment', Marketing Science, 40(4), pp. 593-607.

Trebbi, F. and Zhang, M.B. (2022) The cost of regulatory compliance in the United States. NBER Working Paper No. 30691. National Bureau of Economic Research.

U.S. Chamber of Commerce (2024) Small businesses are spending more time, money on regulatory compliance. U.S. Chamber of Commerce. Available at: https://www.uschamber.com/small-business/small-businesses-are-spending-more-time-money-on-regulatory-compliance

European Commission (2025) Digital Omnibus Package: Simplifying EU digital rules. European Commission. Available at: https://digital-strategy.ec.europa.eu/en/policies/digital-package