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The Securities and Exchange Commission (SEC) needs to make its rulemaking process as strong as possible to prepare for even more challenges to new regulations than it has faced in the last couple years, the SEC Office of the Inspector General said in a report released Monday.
While the agency “already invests considerable resources” into writing rules, soliciting public comment, and responding to them, it “should be prepared” for more court challenges, the agency’s watchdog said.
“Challenges to SEC rules have become more frequent,” including cases that have paused or struck down rules on climate disclosure, share repurchases, and disclosures for private equity and hedge funds, the report said.
“The current regulatory environment may lead to increased forum shopping by petitioners and extended periods of uncertainty about the permissible scope of agency action,” according to the report. That environment includes federal courts that no longer have to defer to agencies like the SEC when interpreting ambiguous parts of a law that underpins a regulation being challenged. In June, as the report noted, the Supreme Court overturned Chevron Deference, that four-decade-old precedent.
But the SEC is already doing things by the book, a spokeswoman told the Wall Street Journal. “In all of our rule-making and other policy endeavors, the agency and its staff consistently seek to exercise the commission’s authorities consistent with the laws Congress has passed and the courts’ interpretations of those laws,” she wrote in an emailed statement.
The OIG said it will finish an audit in the 2025 fiscal year on how well the agency’s regulatory process provides for qualified staff to write new rules, for public feedback, and for “assessing and documenting” how proposed rules would affect businesses and competition.
Busier but weaker. The SEC will be stretched thinner as it pursues the growing number of “investor complaints of crypto asset related fraud,” the OIG report said, but it also noted that the agency is still in a hiring freeze. Another June Supreme Court decision (SEC v Jarkesy) added to the agency’s staffing burden: Justices said that if the SEC wants to fine someone for alleged securities fraud, they’ll have to take the defendant to a jury trial instead of using its in-house administrative courts.