Battle For Congress: Regulatory Impact Of US Mid-term Elections

November 10, 2022
The first results of mid-term elections dash Republican hopes for a “red wave” but they may still take control over the House with a narrow majority, which could have implications forthcoming regulator changes.

The first results of mid-term elections dash Republican hopes for a “red wave” but they may still take control over the House with a narrow majority, which could have implications forthcoming regulator changes.

On Tuesday (November 8), Americans in many states went to the polls to elect their representatives in both Congress, which Republicans hoped could end Democrats’ control over the legislative body.

Although the “red wave” predicted by Republicans has not yet materialised with the Senate race remaining evenly balanced at the time of writing, they still have a chance to take control of the House with a narrow majority.

Should Republicans win the House, it means that it could be harder for Democrats to push through legislation that divides lawmakers along partisan lines, for instance issues related to environmental, social, and corporate governance (ESG).

In addition, a Republican majority in the House would mean that Democrat Maxine Waters from California must step down as chair of the House Committee on Financial Services.

The committee, which is among the House's most powerful committees, oversees the entire financial services industry, including securities, insurance, banking and housing, as well as the federal agencies regulating these activities.

Waters’ priorities during her tenure included examining the state of minority depository institutions and increasing diversity and financial inclusion.

It is believed that in the event of GOP control, North Carolina Republican Patrick McHenry, who currently serves as the ranking member of the committee, would assume the role of chair.

Waters and McHenry have previously proven that the two can work together on important issues, such as comprehensive, novel stablecoin legislation. The committee’s top members have been working on a legislative proposal for stablecoins since early this year and are expected to lay a bill before Congress next year.

Speaking at the DC Fintech Week in early October, McHenry touted his Democratic counterpart for making important compromises on the bill, ensuring that the resulting proposal is indeed a bipartisan product.

Nonetheless, McHenry has been a fierce critic of various actions of the Securities and Exchange Commission (SEC) and its current chair, Gary Gensler, as well as that of the Rohit Chopra-led Consumer Financial Protection Bureau (CFPB).

The Republican representative has reportedly said that as a chair, his first goal would be to provide “appropriate” and “vigorous oversight” of the SEC and the Commodity Futures Trading Commission (CFTC), the two agencies that regulate large Wall Street banks.

McHenry has previously questioned the SEC’s authority in ongoing rulemaking regarding climate-related disclosures and cybersecurity risk management, among others.

He would also prioritise initiatives that help businesses raise money, particularly in minority and disadvantaged communities, and increase regulatory oversight of stablecoins.

Finally, McHenry said he would use his power to expand existing financial data privacy rules that largely govern disclosures of how banks use customers’ data, to add new personal data rules.

In late June, McHenry released a discussion draft of new legislation that would modernise financial data privacy laws. He said his proposal will be better tailored for the digital age and will protect against the misuse of consumers’ personal information.

McHenry’s plan to place these items on the agenda of the Financial Services Committee now depends on whether Republicans can score five extra seats in the House during the mid-term.

As of Thursday morning (November 10), Democrats have won 184 seats in the House, whereas Republicans scored 207 seats.

Meanwhile, the race for Senate seems poised to go down to the wire after Democrats won a key seat in Pennsylvania, flipping it from Republican control.

By early Thursday morning, election results show a Republican victory called in Wisconsin which means that the control over the Senate goes down to three remaining states — Arizona, Nevada and Georgia, with the latter one facing a run-off in December.

If the Democrats were to win two of these three seats, the Senate would be divided 50-50. This would mean the Democrats would retain overall control of the Senate as vice-President Kamala Harris would have the deciding vote.

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