A series of recent rulings by the U.S. Supreme Court (SCOTUS) shifting power from regulators to the courts will lead to increased legal challenges, and may have widespread credit impacts, according to Moody’s Investors Service.
In late June, the top U.S. court issued successive decisions that curbed regulatory power. This includes a ruling that struck down the U.S. Securities and Exchange Commission’s (SEC) ability to penalize fraud in its tribunal and overturning the so-called “Chevron doctrine,” which required federal courts to defer to federal agencies on the application of ambiguous laws. These decisions were followed closely by a ruling that eliminates time limits on legal challenges to federal rules.
Taken together, the rulings “point to a broader trend of diminishing agency authority,” the rating agency said in a report released Tuesday.
“This may trigger an increase in legal challenges against existing and future regulations and regulatory actions, likely creating a rocky transitional period and complicating business operations and planning,” Moody’s said.
In the meantime, the prospect of increased litigation “will likely slow the regulatory process,” and could reduce regulators’ ability to tackle emerging issues, the report noted.
“Overall, federal agencies will have more limited power to address environmental issues,” the report said, including the SEC’s recent climate-related disclosure rules, which are now “more likely to be reversed.”
“Absent new legislation, weakened agency power makes it less likely that the U.S. will meet its stated climate goals, raising the risk of heightened climate-related physical risks over the long term,” Moody’s said.
The rating agency also said that it expects U.S. banking regulators to face increased challenges in their policy efforts.
“In addition to increased challenges over new and existing regulations, the SCOTUS rulings will likely lead to increased lawsuits over other regulatory responsibilities such as supervision and enforcement and mergers and acquisitions, potentially weakening prudential guardrails.”