With the retirement of Anthony Kennedy, the U.S. Supreme Court’s frequent swing vote, President Trump’s chosen replacement, Brett Kavanaugh, has the potential to establish a reliable conservative majority on the court. Over the course of Kavanaugh’s 12-year career on the District of Columbia Circuit Court of Appeals, his rulings — which demonstrate a deep skepticism of federal regulatory authority and rulemaking — have stifled government regulators working to protect consumers and punish suspected bad actors. With Kavanaugh’s addition, this court will be expected to take more of a pro-business stance and show more skepticism of federal oversight and financial services regulation.
Below are top takeaways from the Financial Communications team in Edelman’s Washington, D.C. office on how Brett Kavanaugh could help usher in a host of new rulings that will impact the corporate world and the financial services industry.
As a Circuit Court Judge, Kavanaugh was a frequent critic of the Securities and Exchange Commission. Specifically, in challenges to the SEC’s enforcement actions against brokers and investment advisors, Kavanaugh questioned the agency’s authority to expel bad actors and levee harsh fines. Following the recent Supreme Court decision that found the SEC’s system for appointing in-house judges to be unconstitutional, with Kavanaugh the Supreme Court gains an additional industry ally. As Kavanaugh stated in an opinion last year, “Over time, a fairer, more equitable, and less arbitrary system of FINRA and SEC sanctions should ensue.” Kavanaugh’s prediction of fewer SEC sanctions is likely to come to fruition, as future SEC rulings are quickly appealed and the agency becomes far less emboldened to impose stiff sanctions and go after questionable actors in the industry.
The powers of the Consumer Financial Protection Bureau have already come under attack in the Trump administration under Acting Director Mick Mulvaney, and it could face further threats with Kavanaugh in the Supreme Court. In a 2016 opinion that was later overturned, Kavanaugh declared the structure of the Consumer Financial Protection Bureau “unconstitutional.” Kavanaugh asserted that the agency, created under the 2010 Dodd-Frank Act, lacked sufficient oversight and set a dangerous precedent with its level of independence. Kavanaugh’s elevation to the Supreme Court may lead the CFPB to face new legal challenges. Either through judicial or legislative action, conservative Congressional Republicans are emboldened to make reforms to the agency, such as replacing the CFPB’s independent director with an advisory board or limiting the bureau’s regulatory oversight.
Federal Rulemaking and Enforcement
Kavanaugh has suggested strict legislative interpretations for rules issued by federal agencies. In a past opinion Kavanaugh stated, “For an agency to issue a major rule, Congress must clearly authorize the agency to do so,” and, “If a statute only ambiguously supplies authority for the major rule, the rule is unlawful.” As with the now-defunct fiduciary rule, rulemaking from the Department of Labor and others is likely to be further scrutinized with Kavanaugh on the Supreme Court. In a more dramatic challenge to federal regulatory authority, Kavanaugh has expressed skepticism of the Chevron Doctrine, a current precedent that gives deference to regulatory agencies to interpret ambiguous statutes in legislation. If the Supreme Court were to overturn this precedent, Congress might then be required to explicitly draft language surrounding each specific regulation. This would in turn significantly increase the difficulty for Congress to agree on and pass legislation that mandates federal oversight.
Kavanaugh proves his conservative credentials with his deep skepticism of the federal government’s regulatory authority. On the telecommunications issue of net neutrality, Kavanaugh argued last year that the former net neutrality regulation violated the First Amendment rights of internet service providers. Kavanaugh similarly ruled against the Obama administration’s efforts to combat climate change through regulatory actions by the Environmental Protection Agency (EPA).
With Kavanaugh likely to be confirmed later this year, the new conservative majority on the Supreme Court has the potential to alter precedent, including for the business community. Corporations and industry groups are already preparing legal efforts that will attempt to significantly impact the ability of the executive and legislative branches to provide oversight and regulate business activities.
Nick Rozzo is an account executive, Financial Services sector, Washington D.C.