America prides itself on being a land where individuals and businesses can plan their futures. Control over the design of your life is essential to liberty, and the nation prospers when people know that their enterprises and investments will be immune from arbitrary enforcement. However, in a world of wide-ranging regulations—covering everything from cryptocurrency markets to healthcare to environmental standards—the promise of legal predictability often goes unfulfilled. Many agencies, instead of clearly stating the rules in advance, prefer to announce them during an enforcement action. This approach, known as “regulation by enforcement,” stifles innovation, chokes off economic growth, and undermines the rule of law.

　　Regulation by enforcement has become a flashpoint. Last month, Judge Stephano Bibas of the Third Circuit Court of Appeals noted: “Nearly a century ago, Congress created the SEC to serve as a watchdog for securities markets, including by developing rules. The SEC insists that its old rules apply to the novel crypto market but refuses to spell out how.” He then opined:

　　Crypto companies like Coinbase are confused about how to comply with the law and have repeatedly asked the SEC to clarify. Instead of doing so, the SEC sues the companies individually. It wants to proceed with ex post enforcement without announcing ex ante rules or guidance. … Its old regulations fit poorly with this new technology, and its enforcement strategy raises constitutional notice concerns.

　　In a recent article, we show that there is a statutory tool, as old as modern administrative law itself, admirably adapted to combat these ills. Section 5(d) of the Administrative Procedure Act (APA) commands government agencies to issue “declaratoryorders” to clarify the legal status of regulated conduct before the regulated party faces adverse consequences. Adeclaratoryorder is a binding, noncoercive ruling that definitively declares whether a proposed or ongoing activity complies with the law. If it sounds too good to be true for regulated persons, that might explain why agencies have resisted it—after all, bureaucrats often seize the advantage over ordinary citizens by maintaining maximum flexibility. But by ignoring or underusingdeclaratoryorders for decades, agencies have frustrated Congress’s original vision. Restoring that vision can foster economic growth and revive key rule-of-law values in our administrative state.

　　The Dangers of Regulation by Enforcement

　　No one disputes that government has a significant role in protecting the public and correcting market failures. However, the regulatory apparatus can become dangerous when agencies rely too heavily on enforcement actions to clarify what the law demands. Instead of laying out clear rules, agencies may wait until a business moves forward with a new product, practice, or service. Then, if the agency disapproves, it slaps the business with sanctions, fines, or other penalties.

　　This approach deprives citizens of fair notice. An innovative firm might invest years of effort and millions of dollars only to discover that its innovative product is outlawed by some unannounced bureaucratic interpretation. The blunt force of enforcement then chills the next wave of innovation.

　　The Original Meaning of Section 5(d)

　　Courts are beginning to pay more attention to the original meaning of the Administrative Procedure Act (APA), just as they have with the Constitution. This would be another good case for applying originalism. In 1946, to reconcile the rule of law with administrative power, Congress enacted the APA. The APA established a rule-of-law foundation for the regulatory state. One of the Act’s neglected provisions is Section 5(d), authorizing—and indeed requiring in some circumstances—agencies to issuedeclaratoryorders “to terminate a controversy or remove uncertainty” in matters that fall under their authority. The basic idea is straightforward: rather than forcing a regulated party to guess whether they comply with a host of complex rules, the firm can ask the relevant agency for a formal, binding answer ahead of time. If the agency issues adeclaratoryorder approving the proposed activity, the business can proceed in confidence. If the agency issues an unfavorable order, the business knows whether to change its plan or seek a change in the regulatory framework.

　　Unfortunately, even though the APA’s language is quite plain—an agency “in its sound discretion … may issue a declaratory order”—few agencies have embraced the device in any robust way. It is true that they sometimes opt for nonbinding “advisory opinions” or “no-action letters” that offer no guaranteed security.” But these mechanisms leave room for the agency to reverse course—without notice. By contrast, a proper declaratory order binds the agency, subject, of course, to valid reasons for revisiting the ruling in the future, and provides legal certainty so businesses can plan accordingly.

　　Mandating the broader use ofdeclaratoryorders would not only implement faithfully Congress’s directive but would also restore confidence and creativity in our commercial republic.

　　One might ask why agencies are not free to refuse declaratory orders whenever they want. After all, the APA’s text states that the agency “may” issue adeclaratoryorder. Yet that same sentence also invokes the phrase “in its sound discretion”—the only time the phrase is used in the APA. “Sound discretion” was a legal term of art in 1946. At that time, “sound discretion” in the courts meant equitable, reviewable discretion: judges could not arbitrarily refuse to issue adeclaratoryjudgment if the facts were concrete and issuing that ruling would “remove uncertainty or terminate a controversy.” This limited kind of discretion required a genuine balancing of interests. No court has ever taken the position that an agency’s decision whether to issue a declaratory order is dependent on its whim. But courts have yet to understand the robustness of the sound discretion standard.

　　Congress borrowed that standard from judicialdeclaratoryjudgments and embedded it in the APA, intending for agencies to follow suit. At the time of enactment, the judiciary was required to provide a declaratory order whenever a party faced actual harm, unless there was a good reason not to. Similarly, in administrative procedure, where a regulated party faces real risk from an unclear rule, the agency must either give an answer or provide a good reason for refusing. Fear of additional costs or inconvenience to the agency does not, by itself, trump Congress’s command. Indeed, the APA specifically authorizes agencies to charge filing fees fordeclaratoryorders, so that resource concerns need never become an excuse for refusing them.

　　Moreover, agencies remain free to deny or postpone adeclaratoryorder when someone brings a frivolous request or when key facts are still in flux. If the question is purely hypothetical or if the relevant law will be examined in a pending enforcement matter already underway, the agency has latitude not to issue the order. But absent such legitimate grounds, a refusal to provide clarity undermines both liberty and the rule of law.

　　Declaratory Orders After Chevron

　　By its terms, section 5(d) applies only to formal adjudication, and much agency adjudication is informal. But the Supreme Court precedent, followed by lower courts, has applied section 5(d) to informal adjudication as well. Thus, statutory stare decisis supports this broader scope even if it was wrong as an original matter.

　　Moreover, even if the Supreme Court revisited the scope of declaratory orders and narrowed its ambit to formal adjudications, more agency adjudication is likely to become formal after Chevron’s demise. Chevron permitted agencies to interpret in favor of informality any ambiguity about whether they were required to hold formal hearings. Given the greater ease of informal procedures, some agencies exploited ambiguity in just that way. But now, post-Chevron courts must decide whether a statute mandates formal or informal hearings for the agency. Courts, as neutral arbiters that are intimately familiar with process, are likely to interpret statutes as providing regulated parties with the more ample procedures of formal adjudication.

　　In any event, the new administration could itself reinvigorate declaratory orders. First, it could order agencies to follow the original meaning of “sound discretion” in section 5(d). Second, it could go even further than Congresss command and tell agencies to provide declaratory orders whenever they are not forbidden by law, and the public benefit outweighs the administrative cost. Agencies have substantial discretion to provide more process than the APA requires them to provide. This executive order would comport with the superb administrative approach adopted by the first Trump administration, which tried to make it easier for citizens and companies to plan. For example, the administration required all agency guidance to be publicly available. An executive order on declaratory orders would provide another boon to planning and therefore to liberty.

　　The Payoff of Declaratory Orders

　　Consider the present-day scenario of a firm hoping to list a novel cryptocurrency exchange-traded fund (ETF). As highlighted last month by Judge Bibas, such products exist at the forefront of both technology and finance, creating uncertainty about how they fit within longstanding securities rules. Multiple companies have tried to get approval for these crypto-related funds, but regulators have been hesitant or slow to act.

　　Adeclaratoryorder from the SEC, by contrast, would provide definitive clarity on whether the specific structure of the proposed ETF complies with the rules. If yes, the firm can proceed confidently, attracting investors and encouraging broader market development. If not, the firm knows that it must modify its approach or seek a different path. In both cases, the free market benefits from clear signals on how to innovate in a lawful manner.

　　The same reasoning applies across the regulatory spectrum. Think of environmental permitting: a company wants to deploy modern technologies to reduce emissions, but it is not entirely sure whether those new processes meet the Clean Air Act’s requirements. Or think of telehealth platforms that leverage advanced software for patient care but remain unsure if certain privacy protocols meet federal health regulations. In each case, adeclaratoryorder could provide certainty and thus encourage innovation.

　　Declaratoryorders, properly applied, reflect the “better angels” of our administrative system. They turn agencies into partners who, far from threatening enforcement at every turn, share their expertise upfront. Citizens do not fear investing in the latest ideas because they know they can rely on the agency’s declared position—subject, of course, to any genuinely new developments that might require reevaluation.

　　We prosper when entrepreneurs can engage in a dynamic marketplace governed by sensible, consistent rules. Yet we need regulations to prevent companies from wrongly imposing costs and dangers on our citizens. One overlooked but important mechanism permits bold enterprise and necessary regulation to flourish together. That mechanism lies in the original understanding of the APA, in a provision enacted by Congress to afford private actors the ability to force answers from agencies. Mandating the broader use ofdeclaratoryorders would not only implement faithfully Congress’s directive but would also restore confidence and creativity in our commercial republic.