On July 21, the U.S. Court of Appeals for the D.C. Circuit ruled that the SEC’s denial of a petition asking the agency to abrogate or amend FINRA’s arbitration rules failed to provide a reasoned explanation under the APA, and the court granted the petition for review in part and remanded the matter to the SEC for reconsideration. The case arose after a financial services provider, which sells variable annuities and variable life insurance contracts, petitioned the SEC in 2021 to abrogate or amend three arbitration-related FINRA rules, arguing that the rules conflicted with the Federal Arbitration Act. The challenged rules require FINRA members to arbitrate business disputes with customers under FINRA’s own arbitral code whenever a customer requests it, and bar members from compelling customers into any other forum absent the customer’s consent. Subsequently, in March 2025, the SEC denied the petition in a three-paragraph letter, stating that it had discretion to marshal its limited resources, that its authority to amend FINRA’s rules is discretionary, and that “reexamination” of FINRA’s arbitration forum had not been placed on the SEC’s unified agenda because personnel and resources were being used for other matters.

The court held that the SEC’s letter was arbitrary and capricious because it offered only “cookie-cutter reasons for not acting that could apply to any petition for rulemaking” and never connected its reasoning to the substance of the petition. The court found that the SEC’s letter provided no explanation of why review of the three rules was not a priority, calling the letter’s reasoning “a truism, not a reason.” The court rejected the petitioner’s request that it vacate the challenged rules outright, noting that the deadlines to challenge the underlying orders approving those rules under the 60-day statute of repose in the securities laws had long since passed. The court also declined to order the SEC to grant the rulemaking petition on remand.