This statement is true. Regulation does consist of legally-binding rules that are meant to affect people’s behavior.
Regulations are legally-binding rules that tell people what they must or must not do. For example, the minimum wage is a legally-binding rule that tells businesses that they must pay people no less than a given wage. As another example, a city’s setback requirements for residential housing are rules that tell builders that they must make sure that the home’s walls are a certain distance from the property line. These are clearly meant to encourage or discourage certain behaviors (low pay, houses too close to property lines). Therefore, the statement is true.
One caveat, though. I suppose it is possible that your instructor wants you to say that this is false because regulation does not simply “encourage or discourage” certain behaviors. Instead, it actually requires or bans those behaviors. You can say that “encourage” and “discourage” imply that you have the option to disobey the rules, which means that “false” would be the right answer. To me, this seems excessively tricky and based on semantics, but if your class has been talking about the difference between things we are required to do and things we are encouraged to do, the right answer could be “false.”
With this caveat, then, I would say “true” is the correct answer.