What is a Regulatory Agency?

Malcolm Tatum
Malcolm Tatum

Regulatory agencies are organizations that are charged with the process of overseeing the processes and procedures that are employed in the function of a given industry. In many cases, the regulatory agency is a department or division of a government entity, and is focused on setting and enforcing the standards dictated by law in regard to trade issues. There are also regulatory authorities that are created and maintained within certain industries that have no connection with any government entity, but do serve as monitors of unethical activity within that industry.

Man climbing a rope
Man climbing a rope

The most common model for a regulatory agency is as a government agency that is responsible for creating rules and regulations that are in accordance with the laws of the land, and have specific application to a given type of activity. For example, a regulatory body of this type may oversee investments that involve the purchase and sale of stocks, bonds, and other securities. As part of its duties, the agency drafts regulations that apply to both the buyer and the seller, as well as any agent or intermediary that aids in any security transaction. In most countries, this same agency would have broad powers that allow the entity to investigate any transaction or series of transactions that appear to be in breach of those regulations, and thus the laws of the land.

The scope of the regulations laid down by a given regulatory agency will usually apply to every aspect of a transaction process, and are designed to protect the best interests of both the buyer and the seller. For this reason, those regulations will often be structured to ensure there is complete transparency at all times. This creates an environment where both parties to the transaction are obligated to make full disclosure regarding any information that could have an impact on that transaction.

In addition, a regulatory agency will also define the qualifications for entering into such a transaction. This means that unless both the buyer and the seller can comply with those qualifications, they may not do business together. Regulations of this type help to avoid situations that could ultimately threaten the stability of a given industry, or the economy of the nation as a whole. For example, an investor must have a certain amount of assets on hand in order to participate in some investment opportunities. At the same time, businesses that issue shares of stock must meet specific criteria in order to issue up to a specific number of shares.

Regulatory agencies are not only created to monitor the scope and structure of financial transactions. In many countries, there is often a regulatory agency that sets standards for food purity, the licensing of drugs for use by the medical profession, and even the monitoring of businesses and their impact of their operations on the environment. It is not unusual for these agencies to also have the authority to impose fines for breaches of current regulations, as well as initiate legal action when and as necessary.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Discussion Comments


@Telesyst - Regulatory agencies are more likely to be in charge of making the rules and laws. However, regulatory authorities, like the Internal Revenue Service or Securities and Exchange Commission, for example, can investigate and charge companies and individuals with violations.

A large part of the IRS' work is actually investigating tax and securities fraud.

If you are charged with any violations of tax or securities laws, the penalties these agencies hand down are very real and enforceable.

Both of these agencies sometimes work with U.S. attorneys or even the Federal Bureau of Investigation, depending on the crime.


Do regulatory agencies have the ability to enforce the rules and laws they develop, or are they only responsible for making the laws, meaning police and other law enforcement agencies are left to investigate and bring charges against violators?

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