Rolling Back the Fiduciary Rule: A Primer


In a new commentary by Crow & Cushing examines the process for rolling back existing regulations and what to expect in the case of the “fiduciary” rule.  Crow & Cushing is a law firm in Princeton, NJ, specializing in serving the alternative investment industry.

During the first weekend of the Trump Presidency, the President promised one of the ways he would stimulate growth in the economy was to cut federal regulations by 75%, or “maybe more.”  A January 20, 2017 Executive Order required that, for every new regulation it proposed, a federal agency needed to identify at least two existing regulations to be repealed.

Crow & Cushing thinks the new President may be aiming a bit high.  Rolling back an existing regulation may be every bit as difficult and time consuming as promulgating the rule in the first place, as they illustrate in the case of the “fiduciary” rule, a regulation the new administration has specifically targeted.

The Crow & Cushing commentary, Rolling back the Fiduciary Rule: A Primer on Making (and Unmaking) a Regulation explains how the government promulgates and enforces regulations and how a proposal to repeal a rule is itself a “proposed rule” that triggers rulemaking in reverse.

The key insights provided in the paper include:

  • When Congress passes a law, it typically authorizes a federal agency to develop regulations which are necessary to implement the law.  In doing so, the agencies are guided by the Administrative Procedure Act.[1]  New regulations or amendments to existing regulations are called “proposed rules.”
  • The rules govern businesses, non-profits and individuals across a broad range of conduct.  Just how are these regulations promulgated?  When Congress passes a law, it typically authorizes a federal agency to develop regulations which are necessary to implement the law.  In doing so, the agencies are guided by the Administrative Procedure Act.[2]  New regulations or amendments to existing regulations are called “proposed rules.”  The APA requires that agencies publish proposed rules in the Federal Register at least 30 days before they are effective and provide a means for the public to offer amendments, to comment on or to object to the regulatory proposal.
  • Once made, regulations can be overturned by the courts or an act of Congress, or pursuant to the Congressional Review Act (“CRA”), [3] under which Congress can disapprove a rule by joint resolution, subject to presidential veto, within 60 legislative days after submission to Congress for “major” rules and within 30 days for “non-major” rules.
  • Until the second week of the Trump Presidency, Congress had only once before, in 2011, successfully utilized the 20-year-old CRA, to overturn a rule requiring that employers take steps to avoid ergonomic injuries, while President Obama had vetoed five other attempts.  In just one week, Congress has now used the CRA five times to roll back a regulation, including an SEC rule requiring energy companies to disclose payments made to foreign governments for developmental rights.
  • Unless vulnerable under the CRA, the President will likely find that eliminating federal regulations, especially the ones he deems overly burdensome for business, is a complicated and lengthy process.  A proposal to repeal a rule is itself a “proposed rule,” and it triggers rulemaking in reverse.  Rolling back a regulation requires publication, comment and perhaps hearings.
  • Take the “fiduciary” rule as an example. The fiduciary rule was promulgated in April 2016.  So it is not subject to congressional disapproval under the CRA.  Creating the rule took years and was a contentious, complicated affair.  Repealing it may be no easier.  The fiduciary rule cannot be undone through an abbreviated procedure.  Rolling it back would require a new proposal, notice and a potentially lengthy comment and hearing period.  In other words, it might take just as long to unmake the rule as it took to make it in the first place.  What is more, it is almost certain that a repealer would not be in place by the time the rule is scheduled to take effect, on April 10, 2017.
  • There is, however, a tactic on offer to take the sting out of the fiduciary rule or, for that matter, any regulation.  Without funding and a regulator willing to regulate, a rule will have no effect.  If the new administration decides to withhold funding and declines to enforce the regulation, those who are regulated need not worry about federal government interference.  The rule could soon be forgotten.
  • While the firm’s purpose is not to recommend policy, it does see merit in a suggestion by Cass Sunstein, who served in the Obama White House, in a November 29, 2016 Bloomberg View column.  He called the “two-for-one” idea a “gimmick,” and proposed tweaking the mechanism for eliminating regulations based on a focus on the burdens they impose:  the administration could waive two-for-one or impose two-for-one on a government-wide basis, with an emphasis in either case on preventing imposition of a costly rule while eliminating two whose total cost is modest.
  • Assessing the costs of a roll back of the fiduciary rule is no easy matter.  It requires a balance of the burden on the industry against the cost of repeal borne exclusively by consumers, in the form of higher fees.  That’s only one reason an attempted repeal might be controversial, and maybe challenging.


You can review the complete commentary here:  http://crowcushing.com/newsletters/

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