The Supreme Court’s decision last week to overrule the long-standing Chevron doctrine will have massive implications for regulatory interpretation and enforcement. Here’s what it could mean for those working in governance, risk, and compliance.
What has happened?
The Chevron doctrine, a cornerstone of administrative law for the past 40 years, no longer applies to ambiguous laws. The Supreme Court ruled that this deference is inconsistent with the APA’s requirement for judicial independence.
Implications for Regulatory Compliance and Risk Management
The ruling is expected to have significant implications for compliance officers and risk managers. Without the Chevron deference, agency interpretations of laws will be more susceptible to legal challenges in Court. This will almost certainly lead to increased legal uncertainty as courts reassess agency interpretations previously upheld under Chevron.
Agencies may find it more difficult to adopt new interpretations that deviate from previous policies, potentially slowing the pace of regulatory change. Compliance officers and risk managers will need to stay vigilant in monitoring legal developments that could impact agency flexibility and enforcement actions.
Example scenario:
Let’s say the SEC issued a new rule under the Dodd-Frank Wall Street Reform and Consumer Protection Act to increase transparency in financial markets. The rule requires certain disclosures by hedge funds that are not explicitly detailed in the statute.
A group of hedge funds challenges the rule, arguing that it exceeds the SEC’s statutory authority.
The case is brought before a federal court. Previously, under Chevron deference, the Court would likely defer to the SEC’s interpretation if the statute was ambiguous. The Court must now interpret the statute independently without deferring to the SEC’s view.
If the Court Agrees with SEC: The court may find that the best interpretation of the Dodd-Frank Act supports the SEC’s authority to require the disclosures. The rule is upheld because the court considers it consistent with the statute.
If the Court Disagrees: The court may decide that the Dodd-Frank Act does not authorize the SEC to mandate these disclosures. The rule could be invalidated, forcing the SEC to either revise the rule or seek explicit legislative authority.
How will this impact hiring in GRC roles?
It’s difficult to say what impact this will have on hiring. Regulatory scrutiny has increased in the financial in the past 12-18 months, particularly among private investors, leading to an upswing in compliance hiring.
The regulator’s rules and decisions will be subject to far greater scrutiny, and the process might become mired in judicial and legislative wrangling.
The Supreme Court’s ruling emphasized the importance of independent legal analysis and robust internal controls to ensure compliance with applicable laws and regulations. Compliance officers and internal auditors will be critical in assessing the decision’s impact on their organizations’ regulatory obligations and risk exposure.
Moreover, as agencies grapple with the implications of this ruling, they may seek to bolster their internal governance and risk management capabilities. This could lead to increased demand for professionals with experience in developing and implementing effective compliance programs and risk management frameworks within government agencies.
