Financial Industry Suing to Foil New Regulations

New rules aimed at lenders, investment funds, and other financial entities would increase their compliance costs and lower profits, but Reuters reports that trade groups and fintech companies are battling the regulations in court.

In the past year and a half, more than 30 companies and trade groups representing banks, funds, and other firms have brought at least 15 suits against financial regulators over major rules, according to a Reuters tally.

Many industry executives say they are more willing to litigate than usual. They call the rules ill-conceived and view the judiciary as sympathetic.

The majority of suits allege violations of the Administrative Procedure Act. APA requires regulators to make time for public comment and fully consider it, along with its own rationale, before making rules.

A U.S. Chamber of Commerce VP is quoted as saying that instead the regulatory agencies are cutting corners, and shortening comment periods.

The Alternative Investment Management Association and the Managed Funds Association teamed up for the first time to file an appeal with the Fifth Circuit. It claims that the SEC’s private fund rules violate the APA.

“Ordinarily, litigation against a national regulator is not a course of action we would seek to pursue,” said AIMA CEO Jack Inglis, but the group felt “compelled to” because the SEC overstepped its authority and didn’t account for legitimate industry concerns.

According to a statement, the SEC “undertakes rulemaking consistent with its authorities and laws governing the administrative process, and we will vigorously defend challenged rules in court.”

Some plaintiffs said the political leaning of the courts was not a motivating factor and pointed out that the Fifth Circuit Court of Appeals last month upheld the SEC’s approval of Nasdaq’s board diversity rule.