Regulation
End of Chevron Deference Is a ‘Power Shift’ for Investors
What do fishing, air pollution and Bitcoin have in common? Perhaps just one thing: Until recently, they were all governed by a powerful legal doctrine known as Chevron deference.
But in late June, a fishing-related Supreme Court case, Loper Bright Enterprises v. Raimondo, ended Chevron’s deference. Experts say the decision could lead to major changes in financial rules, especially when it comes to cryptocurrency. Here’s what investors should know.
What was Chevron deference?
The term “Chevron deference” comes from a 1984 Supreme Court case, Chevron USA Inc. v. Natural Resources Defense Council Inc. That case concerned whether the Environmental Protection Agency (EPA) could modify factory emissions regulations resulting from a broadly worded air pollution law.
The court upheld the amended regulation, creating a “Chevron Doctrine” under which judges had to rely on the expertise of federal agencies like the EPA when they issued, amended, or enforced regulations based on ambiguous laws.
Jeff Sovern, a professor of consumer law at the University of Maryland Carey Law School, sums up Chevron’s deference this way:
“Congress writes the statutes and they can’t predict everything. Nobody can. So they leave gaps; they’re human. Somebody has to fill those gaps. And under Chevron, if there were gaps, it was largely up to the administrative agencies,” Sovern says.
Over the past 40 years, the Chevron deference has been used in more than 19,000 federal court cases, and Congress has passed broadly worded laws with the expectation that the Chevron deference would allow agencies to interpret them into specific regulations.
But on June 28, the Supreme Court ruled against a federal agency’s regulation of fishing vessels in Loper Bright Enterprises v. Raimondo, ending Chevron’s deference. Federal agencies no longer have the power to enforce regulations based on their interpretations of ambiguous laws. They can regulate only when their regulatory powers are explicitly defined by law, Congress, or a federal judge.
Financial regulations could ease
Chevron deference was a core legal principle in many federal regulations, and its disappearance could roll back a number of financial rules.
Sovern says the full impact of Loper Bright on financial regulation is unclear. Some agencies, such as the Consumer Financial Protection Bureau (CFPB), have congressionally mandated powers to set “appropriate” rules, and those rules could still hold up in court after Loper Bright.
But that may not always be the case. For example, a Texas federal judge has already cited Loper Bright in an order that could potentially overturn the Federal Trade Commission’s recent ruling prohibition of non-competition agreements [0].
According to Alex Alben, a professor at UCLA Law School and former Washington state privacy commissioner, cryptocurrency This is another area of financial regulation that could see a lot of changes because of Loper Bright.
“In cases like cryptocurrency regulation, where there are very few laws and very few interpretations by agencies, we’ve certainly seen a shift in power from agencies to courts in those areas,” Alben says.
Cryptocurrency regulation now falls to Congress
Congress has passed cryptocurrency tax laws and debated several bills that would explicitly define a regulatory framework for digital assets.
But most of the cryptocurrency regulation today is done by agencies like Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) which enforces the rules based on their interpretations of their broad jurisdiction over financial markets. Without Chevron’s deference, many of these rules may not survive legal challenges.
Some cryptocurrency experts argue that cryptocurrencies can still be regulated after the Loper Bright case; Congress just needs to pass laws that clearly define such regulations.
“It creates an obligation for Congress to create actual rules that apply to this industry and pass new laws for a new technology. So it makes it more of a political issue than a bureaucratic one,” says Alexander Blume, CEO of Two Prime, a firm focused on digital assets. registered investment advisor.
Blume says that in the short term, Loper Bright could be a game-changer for cryptocurrency companies in certain regulatory situations. For example, Uniswap, a developer of decentralized cryptocurrency trading software, is facing legal action from the SEC, which considers it an unregistered broker-dealer and exchange that could violate federal securities laws.
The SEC has said it may file charges against Uniswap, which has been hit with class-action lawsuits from investors who lost money buying scam tokens on its software.
But last week, Uniswap’s general counsel sent an open letter to the agency questioning its jurisdiction over the matter, in light of Loper Bright and the lack of clear laws applying securities regulations to cryptocurrencies. [0].
For investors, buyer beware could become the new normal
“I see both positive and negative aspects of this ruling, as far as financial markets are concerned. I think we will have more innovation and more creativity in financial markets,” Alben says.
Many cryptocurrency investors are anticipating the approval of Ethereum exchange-traded funds (ETFs) as early as this month. Blume says Loper Bright could mean that staking out (an interest-based reward system by which Ethereal Ether holders earn new Ether coins over time) could be added to crypto ETFs “sooner or later,” although the current crop of Ethereum ETF candidates do not have staking capabilities due to SEC compliance reasons.
The end of Chevron deference is “an anti-regulation ruling by the court,” Alben says. Less regulation could give investors more choice in what types of investments they can buy, but it could also leave investors more vulnerable to losing their money in potentially fraudulent or otherwise unsavory investments.
“We’re probably going to have riskier environments for investors, and they’re going to have to educate themselves on the levels of risk they’re taking and do their homework before making any kind of speculative investment,” Alben says.
At the time of publication, the author owned Bitcoin.