The sole purpose of regulation is to create frictions in order to slow down or preclude allegedly undesirable outcomes. The “compromise” you mentioned would absolutely result in deceleration.

As Aleph Alpha and Mistral correctly point out, there is simply no way to enforceably regulate generalized computation—which is what foundation models are—without shutting down innovation as such. It simply cannot be done. The tools of law and police are designed only to control the exercise of violence, not to manage the development of information technologies.