The paper was developed by an informal working group convened by IPS following the two-day RIA workshop held in Colombo in June 2004.The authors argue that regulations are necessary to avoid market failures due to natural monopolies, externalities and information inadequacies and to ensure social equity. They further argue that proper regulatory structure benefits consumers as well as investors, and that bad regulations impose unnecessary costs, hampers innovation and adversely affects FDI flows. They assess in the context of ministers being empowered to issue regulations and, at times, regulatory agencies being empowered, that there is no effective systematic evaluation of alternatives and potential consequences, resulting in unintended adverse impacts causing unnecessary burden on society. This working paper describes an international best practice tool for addressing such regulatory failures – Regulatory Impact Assessment (RIA). It goes on to set out a suitable framework to implement RIA in Sri Lanka, taking account of the specific local context. The objectives of the process are summarised, to clearly define rationale for government intervention, to identify groups affected by regulation, to evaluate cost benefits and evaluate impact on small business and competition.