The regulation process whereby a regulatory authority (e.g., a central bank) set or direct the setting of prices that will be charged to clients/ customers for products/ services. Cost of service regulation is a pricing mechanism that is enforced through regulations and regulatory power over banks and financials institutions operating within the jurisdiction of a regulatory authority, particularly where such institutions can muster significant market power due to ability to gain a monopoly or dominant market position over others.

A regulator interferes to determine the revenue requirement or limits that reflect the total amount that must be collected in rates for the services provided to cover and recover its costs, and earn a reasonable return.

Cost of service regulation is also referred to as a a rate regulation or a rate of return regulation.