On June 28, 2024, the Supreme Court overturned the “Chevron Doctrine,” stripping judicial discretion from regulatory agencies and putting it back in the hands of the courts. This event came as a result of a lawsuit against the US Securities and Exchange Commission (SEC), which found that the securities and finance regulatory agency overstepped its judicial power when it tried a fraud case internally and found the accused guilty of fraud.
The judgement was based on a person’s constitutional right to trial by jury, stating that the SEC had violated that constitutional right by failing to provide the accused with that option.
Supporters of the decision believe that the decision will help establish checks and balances for regulatory agencies who have “overstepped” in their rule making and enforcement efforts. The SEC especially has been under heat for several years for enthusiastic and fast application of new rules and amendments, and in its enforcement of those rules. In 2023 alone, the SEC collected almost $5 billion in penalties and brought 784 actions against practitioners.
Opponents believe that this decision will have a negative impact on the industry as expert agencies will now have to rely on the limited knowledge of the courts to further their mission.
What is the Chevron Doctrine?
Established in 1984 in Chevron v. Natural Resources Defense Council, the Chevron Doctrine required judges to defer to agencies’ interpretations of statutes in the event of a dispute, thus relinquishing their judicial power to make independent judgments. That is, agencies have power to decide on a matter based on their interpretation of the law even if it is at odds with the court’s interpretation.
What are the Implications of Overturning the Chevron Doctrine on Regulatory Agencies?
The decision could have a significant impact on regulatory agencies like the SEC and FINRA. In the last four years, the SEC has built up a reputation for swift action to address changes in technology, market volatility and unforeseen world events, acting quickly to introduce and implement regulations and in its enforcement. The Chevron doctrine made this possible, however, with more judicial oversight, the SEC and other agencies may face several challenges including:
- Courts may scrutinize the SEC’s interpretation of securities law and regulations more closely.
- There may be more variability and inconsistency in how regulatory laws are implemented.
- The SEC will have a higher burden of proof to demonstrate to the courts that its enforcement actions align with relevant statutes.
- There will be a greater potential for litigation as firms and practitioners challenge the SEC’s rules.
What does this mean for RIAs?
Registered Investment Advisers (RIAs) could face a myriad of changes if the Chevron Doctrine is overturned. One possible advantage is the checks and balances that judicial oversight will have on SEC’s regulatory and enforcement efforts. However, in the absence of the Chevron Doctrine, RIAs may face greater uncertainty in their compliance efforts, and experience inconsistencies with how those regulations are implemented. Furthermore, the SEC’s loss of autonomy may result in a reinterpretation of regulations, and a bottlenecked system which would leave RIAs without direction on how to best serve their clients.
The true impact of this recent judgement remains to be seen, but we at Jacko Law Group strongly recommend against viewing this decision as a free card to abandon compliance efforts. On the contrary, we suggest doubling down on meeting your regulatory requirements and adopting a ‘Best Practices’ approach to strengthening your compliance program.
If you would like help reviewing and strengthening your compliance program, please reach out to us at 619.298.2880 or email [email protected].
