Regulation by Enforcement

Abstract

An increasingly common response by regulators to what they view as undesirable market trends or challenges has been a sharp turn towards litigation to introduce novel legal theories and frameworks that could have been the product or subject of legislative or administrative rulemaking. The decision to do so has been met by calls claiming such administrative action to be unfair, and in some instances, illegal.

This Article revisits the New Deal origins of regulation by enforcement, and its more recent incarnations, and explains that as a legal matter, regulators generally enjoy discretion as to whether to make policy through rulemaking, adjudication, or by filing a lawsuit in federal court. However, there are some exceptions to this principle, as well as some reasons to believe that new doctrinal developments hostile to agency adjudications could reduce the discretion of agencies to choose their policymaking tool, especially where their actions are understood to be naked attempts to grab turf or circumvent democratic norms embedded in the Administrative Procedure Act. In this Article, we analyze the incentives facing agencies when choosing to regulate by enforcement, consider some of the new risks, and lay out a framework for thinking about when agencies should regulate by rule, and when they should regulate by enforcement.

Keywords: Enforcement, Regulation, Agencies, Administrative Law, Antitrust, Cryptocurrencies, Securities, Derivatives, Financial Regulation