Court orders SEC to reconsider Thrivent's arbitration rules

The U.S. Court of Appeals for the D.C. Circuit has ordered the Securities and Exchange Commission (SEC) to reconsider its denial of Thrivent Financial for Lutherans' petition regarding arbitration rules set by the Financial Industry Regulatory Authority (FINRA). This ruling, issued on July 21, 2026, affects Thrivent and potentially other companies in the securities industry that rely on arbitration for dispute resolution.

The case arose after Thrivent, a fraternal benefit society that sells insurance and securities, sought to change certain FINRA arbitration rules that it argued conflicted with the Federal Arbitration Act. Thrivent's petition was denied by the SEC in a brief letter that did not adequately address Thrivent's concerns, prompting the company to seek judicial review.

Thrivent Financial for Lutherans and its subsidiary, Thrivent Investment Management, filed a petition with the SEC in December 2021. They argued that FINRA's arbitration rules limited their ability to enforce arbitration agreements with customers, particularly for variable products classified as securities. Thrivent's dispute with the SEC centered on whether the SEC had the authority to amend FINRA's rules and how those rules aligned with federal arbitration law.

In its ruling, the D.C. Circuit Court found that the SEC's denial of Thrivent's petition was arbitrary and capricious. The court noted that the SEC's response was overly general and did not provide a specific rationale for denying the petition. The court stated, "The Commission’s largely boilerplate letter does not clear even that low bar," emphasizing that the SEC must provide a reasoned explanation for its decisions.

The court's opinion, authored by Circuit Judge Millett, highlighted the importance of the SEC's obligation to engage with the specifics of Thrivent's petition. The ruling pointed out that the SEC's failure to connect its reasoning to the content of Thrivent's request constituted a lack of individualized consideration. As a result, the court granted Thrivent's petition in part and remanded the case back to the SEC for further consideration.

This ruling has significant implications for the securities industry, particularly for companies that utilize arbitration as a means of resolving disputes with customers. If the SEC ultimately decides to amend FINRA's arbitration rules, it could alter how arbitration agreements are structured and enforced in the industry.

The court's decision underscores the need for regulatory agencies like the SEC to provide clear, reasoned explanations when denying rulemaking petitions. It also reaffirms the judicial system's role in ensuring that regulatory bodies adhere to their statutory obligations and engage with the concerns raised by industry stakeholders.

Moving forward, the SEC will need to reassess Thrivent's petition and provide a more detailed explanation for its decision-making process. The court's ruling does not compel the SEC to grant Thrivent's request, but it does require the agency to engage with the merits of the arguments presented by Thrivent.

While the SEC has discretion in how it allocates its resources and prioritizes rulemaking, the court's opinion suggests that it must still address significant legal questions raised by parties like Thrivent. The outcome of this case could set a precedent for how the SEC and other regulatory agencies handle similar petitions in the future.

Details were not available in the court filing regarding the SEC's next steps. However, it is likely that the agency will take the court's ruling into account as it reconsiders Thrivent's petition.

This case highlights the ongoing tension between self-regulatory organizations like FINRA and the federal regulatory framework established by the SEC. As the securities industry continues to evolve, the resolution of this dispute may have lasting effects on how arbitration is conducted in the sector.