The SEC and its efforts to implement the Dodd-Frank Act will face more scrutiny if Republicans take control of the U.S. House of Representatives during the Nov. 2 midterm elections, as many pollsters are predicting.
At the same time, it doesn't appear that Republicans are going to try to repeal the Dodd-Frank law. Such a move would create more uncertainty for the financial markets, so Republicans instead will aim to defund "portions of it," said Rep. Jeb Hensarling of Texas, one of the senior Republicans on the House Financial Services Committee, according to Politico.com. In addition, Republicans may not win a majority in the Senate, and President Obama presumably would veto any bill that goes too far to repeal the sweeping legislation.
At the very least, the SEC, the Federal Reserve, the new Consumer Financial Protection Bureau, and other regulators would get closer oversight from a Republican-led House. The SEC, which has sought more resources, likely will face more skeptical lawmakers during the annual budget process and be subject to more committee hearings over its regulatory efforts.
If the Republicans win control of the House, the next chairman of the House Financial Services Committee likely will be Rep. Spencer Bachus of Alabama, according to Politico.com and other news reports. The current chairman, Rep. Barney Frank, is facing a tougher-than-expected election in Massachusetts, but he probably will keep his seat.
Along with other House Republicans, Bachus opposed the Dodd-Frank legislation's authorization for the SEC to adopt a proxy access rule, warning that access would "federalize" corporate law. The SEC adopted a final access rule in August, but that measure is on hold until a federal appeals court decides a lawsuit filed by two business groups. A decision in that case is not likely before next summer.
If the SEC fends off this legal challenge, it's possible that House Republicans could try to delay or weaken the rule, governance observers say. Some Republicans, such as Rep. John Campbell of California, have called for higher ownership thresholds, such as 5, 10, and 20 percent, depending on a company's market cap. The final SEC rule would require a 3 percent ownership stake at all issuers, with a three-year exemption for small firms.
Bachus also has been skeptical of Democratic efforts to rein in corporate pay. "There is no question that there have been some questionable decisions made by some of our major corporations regarding executive pay," Bachus said in October 2009. "However, I strongly believe that it is neither the executive branch nor Congress's role to mandate compensation policies, or the role of this Congress or the executive branch to say who sits on a corporate board of directors or interfere with governance in any way."
However, governance observers don't expect that House Republicans would try to roll back the Dodd-Frank Act's mandate for companies to hold non-binding votes on compensation. The final legislation included a Republican amendment to permit firms to hold biennial or triennial "say on pay" votes, and most issuers already are preparing for marketwide advisory votes in 2011.
Bachus also has opposed the Dodd-Frank Act's "Volcker" rule, which requires federally insured banks to spin off their proprietary trading operations. He backed an unsuccessful amendment that would have conditioned the rule on the adoption of similar standards by a majority of the G-20 nations.
In addition, committee Republicans have called for a comprehensive review of the various provisions in the Dodd-Frank Act that did not receive a formal hearing before being inserted in the bill. Hensarling and other Republicans have called for greater restrictions on investor lawsuits.
At the same time, there likely will be bipartisan support on the committee for legislation to clarify some of the law's provisions, such a new mandate for companies to disclose the ratio of their CEO's total compensation to median employee pay. Issuers have warned that complying with this provision will be expensive and time-consuming.
The panel's subcommittees also will have new leadership if Republicans win the House. Rep. Paul Kanjorski, the Pennsylvania Democrat who now chairs the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, is facing a difficult Republican challenge and may not retain his seat, according to news reports. The ranking Republican on that panel is Rep. Scott Garrett of New Jersey, who has sought to reduce SEC funding and sponsored an amendment to exempt small issuers from the auditor attestation requirement of Section 404(b) of Sarbanes-Oxley Act.
The Senate Banking Committee, which oversees the SEC and financial matters, also will have a new leader. Senator Christopher Dodd, the current chairman, declined to run for reelection. Senator Tim Johnson of South Dakota, a banking industry ally, likely will become chair if the Democrats retain the Senate.