June 26 (Reuters) - A federal appeals court on Wednesday

struck down part of the U.S. Securities and Exchange

Commission's 2022 rollback of rules that critics said impeded

the independence of proxy advice firms that help investors vote

in corporate elections.

By a 3-0 vote, the 5th U.S. Circuit Court of Appeals said

the SEC's explanation for rescinding rules adopted just two

years earlier during the Trump administration was "arbitrary and

capricious and therefore unlawful."

The rollback covered requirements that proxy firms such as

Institutional Shareholder Services and Glass Lewis notify

companies about their advice no later than when they notify

clients, and provide clients a means to obtain companies'

written responses to that advice.

In announcing the changes, SEC Chair Gary Gensler said it

would promote "the timeliness and independence of proxy voting

advice, which would help to protect investors and facilitate

shareholder democracy."

An SEC spokeswoman said the regulator is reviewing the

decision and will determine its appropriate next steps.

The rollback was challenged by Natural Gas Services

Group ( NGS ), which supplies compression equipment to the

energy industry, and the National Association of Manufacturers.

"Today's decision confirms that federal agencies are

bound by the rule of law, even as administrations change," Linda

Kelly, the trade group's chief legal officer, said in a

statement.

The dispute is part of a long-running battle over how to

regulate firms that advise investors how to vote on corporate

matters such as shareholder proposals, the election of

directors, and whether to approve mergers.

Writing for the appeals court, Circuit Judge Edith Jones

said the SEC failed to adequately explain what was wrong with

its earlier finding that the 2020 rules posed little or no risk

to the timeliness and independence of proxy voting.

She also said the SEC failed to reasonably explain why

the risks were so significant that rescission became necessary.

"This was the agency equivalent of saying, 'That was

then--this is now,'" Jones wrote.

The New Orleans-based 5th Circuit is

perhaps the most conservative

of the 13 federal appeals courts. The three judges in

Wednesday's panel decision were appointed by Republican

presidents.

The case is National Association of Manufacturers et al

v SEC et al, 5th U.S. Circuit Court of Appeals, No. 22-51069.