Regulatory Risk

Regulatory risk arises from the conditions and controls implemented by government agencies on the commercial activities of organisations. Where government identifies a gap, or through public pressure feels compelled to respond through a new regulation or regulatory approach, there is regulatory risk. Changes in government and regulation policy expose these organisations to additional sources of risk. The controls vary between regulators and across industries, which means that regulatory risk comes in diverse forms and can result in different consequences.

 Risk indicators include:

• State Regulatory change
• National Regulatory change
• Relationship to Regulator
• Regulation Announcements

Regulatory risk is most easily seen through changes in regulations, particularly to product or other standards that either restrict current operations or reduce barriers that create more market competition. For example, specific reforms around food labelling laws, a possible ‘sugar tax’ or minimum local content requirements for manufacturing arising out of the COVID-19 response could trigger a range of regulatory risks for existing firms. 

When regulatory risk is understood it can be managed through a range of activities including adapting business structures to avoid or more efficiently adapt to the future operating environment, or through influencing and informing those developing the new restrictions from your organisation’s perspective to minimise the areas of most disruption. It can also allow for a more efficient, flexible and appropriate response.