Regulatory Costs

Formal

Some industries, usually ones that have previously been in public ownership, have obligations to Government appointed regulatory bodies. These may control pricing, competition, fraud etc. The costs of reporting to these bodies and implementing their recommendations can be very onerous. It is a little ironic, but investment proposals that reduce these regulatory costs are just as valid as those more standard proposals that increase revenue or maximise profits.

Real-world Example

A financial services firm spends $2M a year on compliance staff and systems to meet industry regulations - regulatory costs that don't generate revenue directly but are required to legally operate.