Regulatory Risk

What is 'Regulatory Risk'

Regulatory risk is the risk that a change in laws and regulations will materially impact a security, business, sector or market. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of investment and/or change the competitive landscape.

BREAKING DOWN 'Regulatory Risk'

For example, utilities face a significant amount of regulation in the way they operate, including the quality of infrastructure and the amount that can be charged to customers. For this reason, these companies face regulatory risk that can arise from events - such as a change in the fees they can charge - that may make operating the business more difficult.

Another type of regulatory risk would be a change by the government in the amount of margin that investment accounts are able to have. While this is an unlikely change, if it were to be changed, the impact on the stock market would be material as this would force investors to either meet the new margin requirements or sell off their margined positions.

RELATED TERMS
  1. Regulatory Capture

    Regulatory capture is a theory associated with George Stigler, ...
  2. Financial Industry Regulatory Authority ...

    A regulatory body created after the merger of the National Association ...
  3. Regulatory Asset

    Specific costs or revenues that a regulatory agency permits a ...
  4. Marginable

    Definition of "marginable."
  5. Regulation F

    A regulation set forth by the Federal Reserve. Regulation F specifies ...
  6. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
Related Articles
  1. Markets

    Government Regulations: Do They Help Businesses?

    These rules are in place to protect consumers and help businesses thrive at the same time.
  2. Markets

    Get To Know These Crucial US Options Market Regulations

    How are options regulated in the U.S and which organizations are involved in options market regulations?
  3. Markets

    Fundamental Analysis: Qualitative Factors - The Industry

    By Ben McClureEach industry has differences in terms of its customer base, market share among firms, industry-wide growth, competition, regulation and business cycles. Learning about how the ...
  4. Markets

    Who's Looking Out For Investors?

    If your account has been mishandled, FINRA and the SEC are among several organizations that can help.
  5. Managing Wealth

    10 Risks That Every Stock Faces

    As an investor, the best thing you can do is to know the risks before you buy in. Find out about 10 common stock risks you should look out for.
  6. Managing Wealth

    How to Invest In Developing Markets

    Developing markets can be attractive additions to many investor's portfolios, but carry additional risks that must be considered.
  7. Markets

    How to Manage Corporate Change in the Modern Economy

    Change can make employees uncomfortable, but these keys can help ease the transition and increase morale.
  8. Investing

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  9. Markets

    The Banking System: Commercial Banking - How Banks Are Regulated

    ByStephen D. Simpson, CFA The 2007-2008 mortgage bubble in the United States, and worldwide credit crisis, highlighted why banks are so heavily regulated; with such a key role in the economy, ...
  10. Trading

    Intermediate Guide To E-Mini Futures Contracts - Margin

    Margin is essentially a loan that a brokerage firm extends to a client (the trader or investor) that is used for the purchase of trading instruments. Margin trading allows traders and investors ...
RELATED FAQS
  1. If the government was considering a change in the federal policy on taxation of ...

    The correct answer is d): Regulatory risk refers to the financial uncertainty surrounding legislative changes at the federal, ... Read Answer >>
  2. How is buying on margin regulated by the Securities and Exchange Commission (SEC)?

    Learn how FINRA and the Federal Reserve regulate margin account trading, and understand how pattern day trading can impact ... Read Answer >>
  3. Is a person registered for Financial Instruments Business eligible to conduct both ...

    Explore Japan's 2006 Financial Instruments and Exchange Law, and understand how the law affects investment services regulation. Read Answer >>
  4. How are margin calls regulated by the SEC?

    Learn how FINRA and the Federal Reserve Board regulate trading in margin accounts, and see how brokers can liquidate positions ... Read Answer >>
  5. How does a broker decide which customers are eligible to open a margin account?

    Learn how brokers have the sole discretion to determine which customers can open margin accounts, and understand the rules ... Read Answer >>
  6. Does a company logo change require a material disclosable event?

    A company logo change usually constitutes a material disclosable event. Securities law requires that companies disclose all ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center