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Supreme Court ruling casts doubt on powers of US regulators

A landmark ruling by the US Supreme Court will put the brakes on a swath of new business regulations, according to senior Republicans and top corporate lobbyists.

Two Republican lawmakers told the Financial Times they believed the Court’s decision to curtail the power of the Environmental Protection Agency would have broad consequences as industry representatives used it to argue against new rulemaking.

Several corporate lobbyists said the implications of Thursday’s ruling would be most immediately felt in the crypto industry, which is facing much stricter regulation under plans by the US Securities and Exchange Commission as well as other financial regulators.

Pat Toomey, the most senior Republican on the Senate Banking Committee, said the ruling was “not about climate change — it’s about the separation of powers”.

“The Supreme Court has sensibly ruled that the executive branch and its agencies, including financial regulators, cannot use creative, new interpretations of existing law to pretend they have legal authority to support sweeping policy changes that Congress never intended,” he added.

“The SEC should consider itself to have been put on notice.”

The decision comes as the securities regulator under chair Gary Gensler proposes new rules covering everything from money market funds to special purpose acquisition vehicles to climate change disclosures.

Patrick McHenry, the most senior Republican on the House Financial Services Committee, said the decision handed down on Thursday was “a warning to the Biden administration — and the regulatory state in general — that they cannot circumvent lawmakers. This is especially true when it comes to determining the rules of the road for the digital asset ecosystem.”

Experts say the ruling is likely to have an impact on large swaths of corporate regulation, preventing agencies from making rules where they have not been given express permission to do so by Congress.

“A general message to agencies is that if you want to do something that is ambitious and bold and not anchored in a clear instruction from Congress, you’re going to have a difficult time persuading courts that you have that authority,” said William Kovacic, former chair of the US Federal Trade Commission.

Jake Chervinsky, head of policy at the Blockchain Association, said SEC proposals that could capture the crypto sector “exceed the scope of [the agency’s] statutory authority. Based on the EPA decision, we expect that the Supreme Court would agree.”

The ruling could also affect efforts by the FTC — which under chair Lina Khan has vowed a tougher stance on antitrust — to craft new rules challenging anti-competitive conduct, as mandated in President Joe Biden’s executive order last year.

The FTC has been asked to devise rules to stop employers blocking their staff from moving to rivals, and prevent pharmaceutical companies from paying generic rivals not to enter a certain market for a period of time.

Kovacic argued that new competition rules could be vulnerable to challenges in light of the EPA ruling, unlike the FTC’s consumer protection regulation that can be anchored to “pretty clear and specific” mandates. “The path for the FTC to using its rulemaking power just got a little bit harder,” he said.

The SEC and FTC declined to comment.

The Supreme Court in its decision invoked the “major questions doctrine”, a legal theory holding that Congress must legislate clearly when a federal agency is authorised to make decisions that have major significance nationwide.

While the principle is not new, the ruling has give it more heft as a doctrine that could underpin future legal challenges against regulators.

“The Supreme Court has taken a tool away from EPA in regulating greenhouse gases, and given a new tool to [the] plaintiff’s lawyers,” said Michael Gerrard, professor of environmental law at Columbia Law School. Regulators “are going to get sued more often . . . so it does add some vulnerability, we just don’t know how much”. 

Richard Pierce, professor at the George Washington University Law School, said that, as a relatively untested doctrine, there would probably be “a lot of uncertainty about its contours”.

The boundaries of regulators’ rulemaking powers, of what constitutes a “major” issue and of Congress’s mandates are set to be determined by courts in years to come, according to experts.

But for now, “the Supreme Court is telling lower courts and certainly telling administrative agencies, ‘you better be building on bedrock when you construct economic regulatory rules,’” said Kovacic.

“And that is very conservative engineering. It really limits how high up you can build”.

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