Regulatory risk refers to the potential for changes in laws or regulations that can negatively impact a business or industry. This risk arises when governments or regulatory bodies introduce new rules, modify existing ones, or enforce compliance more strictly. Such changes can affect operational costs, market access, and overall profitability. Businesses in sectors like finance, healthcare, and energy are particularly vulnerable to regulatory risk. For example, financial institutions must comply with banking regulations, while pharmaceutical companies face strict healthcare regulations. Failure to adapt to these changes can lead to fines, legal issues, or even the loss of licenses.