July 5, 2024
What happened?
On June 28, 2024, the U.S. Supreme Court issued a landmark ruling overturning Chevron deference. The 1984 Chevron case created a doctrine that required courts to defer to federal agencies in interpreting complex or ambiguous regulations. If a regulation passed by Congress did not directly speak to a given situation or was unclear, then the court would defer to the agency interpretation so long as that interpretation was reasonable. The idea was that agencies had been charged by Congress to carry out the administration of regulations and that their expertise made them better suited than courts to interpret regulatory gaps or complexities. Chevron deference has been used by multiple agencies to expand rulemaking over the last 40 years. The new decision in Loper Bright Enterprises v. Raimondo overturned Chevron deference and puts current and future rulemaking in jeopardy.
Future decisions on how to interpret federal regulations will now be increasingly decided by judges rather than agencies like the SEC. If a regulation is unclear in a given situation, the court will make the interpretation. Under the Loper decision, courts will still consider the views of agencies, but courts will have the final say. This puts pressure on agencies to persuade a court that a particular interpretation is correct. The SEC, after a series of high-profile losses in court, may find such persuasion difficult without the deference they once enjoyed. This also means the SEC will have a harder time defending legal challenges against current and future rulemakings.
What does this mean for me?
This decision is the biggest speed bump yet for the SEC’s aggressive rulemaking agenda under Gensler. It came a day after the U.S. Supreme Court held that the SEC must use federal courts and not its own administrative tribunals to prosecute enforcements seeking civil penalties, and three weeks after the Fifth Circuit vacated the Private Fund Reform Rules holding that the SEC exceeded its statutory authority in such a rulemaking. All of these decisions weaken the power of the SEC and strengthen the judicial branch’s involvement in agency actions.
The good news for the industry is that the SEC will have a harder time making new rules and defending legal challenges of recent and future proposals. Proposed rules may need to be drawn more narrowly before they are finalized to survive the judicial interpretation that would come with a lawsuit.
The bad news is that without deference to a single agency’s interpretation we may be entering a period of legal uncertainty. Deference to the SEC gave the stability of a uniform stance on federal regulations. It is unclear what may come in a post-Chevron world. With Congressional gridlock and diminished agency power, we may see courts providing different interpretations in different jurisdictions from a variety of legal challenges.
We will continue to monitor proposed rules and any legal challenges that impact compliance programs. All current SEC interpretations should still be followed. If the SEC rulemaking agenda faces headwinds, we may see the commission increase activity in sweeps, examinations and enforcements to accomplish similar goals using tools that remain well within their authority.
