SEC, CFTC Come Under Fire for Letters Blessing Company Actions

Financial regulators’ use of staff letters to guide industry players is under heightened legal scrutiny that could prompt changes to a widely used agency practice.

Division-level employees at the Securities and Exchange Commission and the Commodity Futures Trading Commission frequently write “no-action letters” in response to requests from companies unsure whether certain conduct would violate the law.

The letters, which allow regulators to move quickly and clarify rules, have long been treated as decisions of the agency’s staff that can’t be reviewed by a court.

The US Court of Appeals for the Fifth Circuit challenged that perception in a recent ...