Development of an effective regulatory system for genetically engineered animals and their products has been the subject of increasing discussion among researchers, industry and policy developers, as well as the public. Since transgenesis and cloning are relatively new scientific techniques, transgenic animals are 'novel' organisms for which there is limited information. The issues associated with the regulation of transgenic animals pertain to environmental impact, human food safety, animal health and welfare, trade and ethics. It is a challenge for the developers to prove the safety of the products of biotechnology-derived animals and also for regulators to regulate this increasingly powerful technology with limited background information. In principle, an effective regulatory sieve should permit safe products while forming a formidable barrier for those posing an unacceptable risk. Regulatory initiatives for biotechnology-derived animals and their products should be able to ensure high standards for human and animal health, a sound scientific basis for evaluation; transparency and public involvement, and maintenance of genetic diversity. This review proposes a regulatory regime that is based on scientific risk based assessment and approval of products or by-products of biotechnology-derived animals and its application in context to Canadian regulations.