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A functional regulation is a strategy that is based on the belief that companies that labor within a given industry should be subject to review by some sort of regulatory body capable of making sure those businesses are in compliance with both industry and governmental standards. The process of functional regulation is often multilayered, with some monitoring occurring at a local level as well as a national or federal level. At times, the process of this regulation may call for some aspects of the company operation to be monitored or regulated by one body, while other aspects are under the consideration of a different regulator.
The underlying purpose of functional regulation is to evaluate the business operation for compliance with any laws or regulations that impact the industry as a whole. At the same time, the process may call for looking closely at specific functions within the business model. For example, the production facilities and process used by a company may fall under the jurisdiction of one government entity in terms of complying with local, state, or federal environmental standards, while the accounting and financial functions of the business may be monitored and audited by other state or even national agencies. Since the concept of functional regulation calls for evaluating company practices and procedures based on standards set by regulators who are considered experts in specific aspects of business operation, this means a company owner may have to deal with multiple regulators addressing different areas of the operation.
Just about any type of business operation will undergo some form of functional regulation. A financial operation such as a bank, credit union, or building society will be subject to regulation by local as well as national governmental agencies. Construction companies will also be regulated on more than one level to ensure the operations are complying with local safety standards as well as using materials that meet national environmental standards. Regulation may focus on all sorts of issues, including the rates customer are charged for goods and services, the amount of ancillary charges such as shipping and delivery, and even how insurance protection is issued to individuals or businesses.
One of the benefits of functional regulation is the protection of customers as well as those who work for or reside for the companies subject to the regulation. Customers benefit from the ability to buy quality products that at least meet minimum standards. Employees enjoy working conditions that are in compliance with the demands of the regulatory agencies. People who live in the area surrounding the business operations are subject to less emissions and contamination of the environment, a factor that usually helps to protect the health of those residents.