Technology companies are spending, on average, 7 per cent of their annual turnover navigating regulatory “frictions”, according to a new report commissioned by Technology Ireland, the Ibec trade association representing the technology sector.
The report – Reducing frictions, optimising interplay: Exploring the digital regulatory landscape – reveals that the digital sector now employs one in eight workers in Ireland, and accounts for 29.4 per cent of total exports, equating to €211.7 billion. However, Ibec says, unnecessary costs associated with regulatory friction is severely harming its future growth, with 85 per cent of surveyed firms stating that compliance barriers have directly impacted their capacity to innovate.
The report is informed by the findings of a survey which was distributed to all members of Technology Ireland. Twenty-one responses were received from across the digitally intensive sectors. More than half of respondents represented companies with average annual EU-wide turnover of more than €50 million, while 19 per cent had an annual EU turnover of less than €5 million.
The survey found that 36 per cent of technology firms have seen their EU-wide digital compliance costs surge by more than 50 per cent since 2023 alone. On average, 12 per cent of a company’s total workforce is diverted to compliance activities, leading to delayed product launches (73 per cent), and reduced scope of product features (73 per cent).
The vast majority of firms who responded to the survey (89 per cent) agreed that costs would fall if overlapping EU rules, unclear guidelines, and Member State legal fragmentation were resolved.
Una Fitzpatrick, Director of Technology Ireland said: “Well-defined legislation is essential to build trust, but today’s regulatory frictions are overshadowing many opportunities, while driving up costs without improving compliance outcomes. With the Irish Presidency of the Council of the EU now underway, Ireland can leverage its honest broker status to facilitate meaningful discussions around better regulation, ensuring European competitiveness remains a core ambition and consideration for Member States. Balancing clarity with consistency is the only way to ensure companies of all sizes can continue to invest, scale, and stay in Europe.
“Every single euro an Irish company is forced to spend on navigating fragmented, unclear, or overlapping administrative hurdles is a euro directly diverted away from vital research, development, and scaling. When compliance costs skyrocket in this manner, the primary casualty is the freedom to innovate. Instead of treating regulation and innovation as opposing forces to be balanced, the goal should be to leverage smart regulation as an enabler of a true Digital Single Market.”
The report sets out a number of recommendations aimed at both Irish and EU policymakers. Chief among these is the simplification and streamlining of regulatory requirements. Ireland should use the opportunity of the Presidency of the Council of the EU “to make progress on the development of an effective and coherent digital rulebook which in turn can act as a critical lever in boosting competitiveness. This could include identifying and eliminating sources of unhelpful regulatory overlaps such as duplication in data transfer rules or cybersecurity incident reporting requirements,” it states.
It is also recommended that the existing impact assessment (IA) process, which is carried out prior to implementation of a new piece of legislation, should be strengthened. These IAs should acknowledge potential overlaps and provide detail on how the proposed piece of legislation will navigate them. IAs should also quantify compliance costs, according to the recommendations. The report adds that all major regulatory changes need to include sufficient implementation windows for firms, and it advocates for greater use of regulatory sandboxes to support innovation and provide upfront legal clarity.
“Ireland and the EU must keep competitiveness as a core ambition, avoiding layering of regulatory fees or levies across instruments and ensuring transparency in the calculation process. By embedding this approach, Ireland can maintain its position as a leading digital hub that couples high standards of supervision with a competitive and coherent structure,” the report states.
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