"Regulatory compliance is your startup's health insurance"

Regulatory compliance for your startup works in a similar way to health insurance: you only notice you need it when you need it. So, it is best to avoid problems than wait for them to happen.

Yet, many founders delay compliance initiatives, seeing them as unnecessary work rather than a necessity. But just as regular checkups and preventive care help you avoid issues later, laying the groundwork for compliance early protects your startup from day one. These early actions also avoid emergency fixes later, especially when investors or customers ask for proof of compliance.

That is why startups need to address core compliance areas from day one, but in a way adapted to their needs and resources. These include anti-money laundering (AML), data protection rules like the General Data Protection Regulation (GDPR) for handling personal data, and additional sector-specific requirements.

What may happen if you don’t focus on compliance?

Ignoring these standards exposes your startup to risks where the well-known fines are only part of the problem. In fact, reputational damage can equally problematic: once trust is broken, recovery is slow and new customer acquisition becomes much harder.

These issues can also make it harder to fundraise and partner with other entities or at least reduce the value that you take from these engagements. In fact, investment deals can collapse during due diligence because of compliance gaps that expose a level of risk investors are not willing to take.

Non-compliance disrupts business operations, too, as non-compliant startups in regulated sectors can be denied market access and face longer sales cycles, especially with enterprise buyers that require certifications.

What is then the advantage of compliance?

Adopting a proactive compliance mindset is an important factor in your startup’s development. Those who grow tend to have compliance as an element of their operations, not an afterthought when things go - or are about to - go wrong.

And by doing so, you get the other side of the coin of the risks described before: compliance can help you secure funding faster and shorten sales cycles since startups are able to answer procurement teams’ questions with i.e. certifications like ISO 27001.

Finally, compliance increases your market reach and reliability in the eyes of customers and partners. It removes typical objections and can eliminate the need for longer audits or negotiations.

Where to start?

Another obstacle that founders usually raise is the length and costs that compliance processes take. However, by starting early and having a clear roadmap on what you need to do, you can adapt your efforts to your startup’s development stage and improve as you go.

This means that you must identify which compliance domains apply to your operations as early as possible and determine how to tackle them as efficiently as possible.

Below we give you some starting points.

Anti-Money Laundering (AML) and Financial Crime Prevention

Startups dealing with financial transactions may fall under AML regulations. This means you may need to look into:

• Know Your Customer (KYC): Set up processes to verify the identity of customers before providing financial services or processing transactions.
• Transaction monitoring: Implement systems that flag suspicious transaction patterns that may indicate money laundering or financial crimes.
• Suspicious activity reporting: Maintain clear procedures to escalate and formally report any irregularities to appropriate regulatory authorities.

Designing scalable AML processes early is essential, especially if you plan to partner with financial institutions or payment service providers who require proof of strong AML programs as part of their due diligence.

Data Protection and Privacy

Data protection affects virtually all startups, as they inevitably process personal data, either from their clients, team members, or partners. Your compliance strategy should focus on:

• Lawfulness of the processing: Make sure your data processing is justified, especially if you deal with sensitive information such as health data and biometrics. If you use consent, make sure it is informed, specific, non-ambiguous and free.
• Privacy by Design: Integrate data protection into your product and technical processes from the outset, by collecting, using and sharing the minimum amount of data needed.
• Transparency: Maintain clear, accessible privacy notices for users and adapt them according to your processing activities (i.e. website, HR, services, etc.).

To make it easier from the start, it is a good practice to map your data flows, so that you know what happens to the information you collect and use. This will also serve as a competitive advantage, as it will show that your data governance structures are solid and organized, making it easier to gain trust and close deals.

Sector-specific compliance requirements

Additional obligations depend on your industry:

• Cybersecurity: Besides general obligations, such as the ones derived from data protection, certain sector-specific rules demand stronger cybersecurity and governance standards. This is the case, i.e. for the financial sector.
• Crypto: The EU has adopted rules on registration, custody, and security compliance that startups need to pay attention to.
• AI: The same thing happens with AI. The EU has recently approved the AI Act that prohibits certain AI systems, adds requirements to others depending on their risk level and regulates General-Purpose AI Models.
• Healthcare/Medtech: The EU has also adopted stronger safety requirements for certain healthcare products and services, namely medical devices. If you are operating in this sector, it is important to pay attention to what assessments and safety standards you will need to comply with.

Building your compliance program

Start your compliance program by conducting a risk assessment. Identify which regulations and business activities create the most pressing compliance demands for your startup. When doing so, avoid spreading resources thin, which means prioritizing areas where your business is most vulnerable. For example, for fintechs, the focus may be on KYC and transaction monitoring, while SaaS companies should potentially start with data protection and security controls.

From then on, embed compliance processes into your operations, prioritize core controls in high-risk areas and iterate as you grow. A way of doing this is by leveraging fractional Chief Compliance Officers or outsource compliance experts. This way, you can scale compliance as needed, which is especially valuable in dynamic or rapidly growing project.

Investing in compliance early gives your startup a real advantage: you avoid problems, protect your brand, and speed up growth. The numbers are clear: non-compliance costs much more than getting it right from the start. So, treat compliance as your company’s health check-up, not a routine to skip.