Final answer:
The use of cloud-based databases introduces regulatory risks such as non-compliance with data privacy laws like GDPR and industry-specific regulations like HIPAA, leading to potential legal and financial penalties for businesses.
Step-by-step explanation:
The use of cloud-based databases has become increasingly common for businesses and individuals alike. However, this shift towards cloud computing has introduced a number of risks, particularly in the realm of regulatory compliance. One significant regulatory risk associated with cloud-based databases is the possibility of data breaches which can result in the violation of laws and regulations designed to protect personal information. For example, businesses might face penalties under regulations like the General Data Protection Regulation (GDPR) in the European Union, which imposes strict rules on data privacy and security.
Furthermore, companies operating internationally may have to navigate a complex web of local and international regulations that apply to data protection, potentially increasing the cost and complexity of compliance efforts. These regulations can also place limitations on the types of data that can be stored and processed in the cloud, as well as where that data can be physically stored.
In addition to data privacy regulations, cloud-based services may also have to comply with industry-specific regulations, such as the Health Insurance Portability and Accountability Act (HIPAA) for healthcare data in the United States, which includes provisions for the secure handling of protected health information (PHI). Non-compliance with such regulations can lead to significant legal and financial repercussions for businesses, making regulatory risk a critical consideration when adopting cloud-based solutions.