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House turmoil not likely to quiet GOP critics of SEC rule proposals           

House turmoil

House turmoil not likely to quiet GOP critics of SEC rule proposals         

House Republicans may have shot themselves in the foot this week with the historic ouster of Speaker Kevin McCarthy but that doesn’t mean they’ll be taking their aim off the SEC.

McCarthy was deposed as speaker Tuesday after eight far-right Republicans and all Democrats voted to remove the California Republican from office. McCarthy drew the support of 210 GOP House members but could not get to a majority of the chamber without the support of his recalcitrant fellow Republicans. Republicans hold 221 seats in the chamber, where 218 is the majority.

The House is in recess until a vote next week to elect a new speaker. The turmoil comes as the Republican majority on the House Financial Services Committee has been blasting Securities and Exchange Commission Chair Gary Gensler and many of the proposals on the agency’s expansive agenda.

Republican members of the panel grilled Gensler on a range of issues at a hearing last week. In a recent letter to Gensler, two leaders of the panel’s subcommittees, Reps. Ann Wagner, R-Mo., and French Hill, R-Ark., joined GOP Sens. Bill Hagerty (Tenn.) and Mike Rounds (S.D.) in excoriating the SEC’s proposal targeting potential conflicts of interest for investment advisors and brokers who use artificial intelligence and other predictive data analytics.

The chair of the committee, Rep. Patrick McHenry, R-N.C., is serving as acting speaker until a new speaker is selected. Even though the House is essentially shut down until Republicans sort out its leadership, that doesn’t mean the SEC can breathe easy when it comes to its critics in the chamber.

“This is a transition of leadership,” said Milan Dalal, managing partner at the government relations consulting firm Tiger Hill Partners, and a former Democratic staffer for the Senate Banking Committee. “It’s business as usual with respect to oversight of the SEC.”

House members will be preoccupied for a while with electing a new speaker. But congressional staff will continue monitoring the SEC.

“The chaos in the House shouldn’t cause any significant delay in the SEC rulemaking process,” said Michael Zona, managing director at Bullpen Strategy Group and a former Republican staffer on the Senate Finance Committee. “At most, it may temporarily distract members from their oversight and advisory roles, but those day-to-day responsibilities largely fall to legislative staff who don’t need to worry about leadership drama on the House floor.”

Once the House leadership is sorted out, Republicans likely will be as determined as ever to pressure the SEC to modify or halt rules, including measures that focus on mutual fund reform and advisor custody of client assets. In some cases, they’ve also gained Democratic support.

“If [Gensler] continues to pursue his ideological reform of our capital markets, then the House, regardless of its leadership, will use all the tools possible to rein in an out-of-control, unelected bureaucrat,” said Chris Iacovella, CEO of the American Securities Association, a trade group for regional financial services firms.

The Republican faction that instigated McCarthy’s downfall had long been suspicious of him. The final straw for them was McCarthy’s support last weekend for a funding bill that prevented a shutdown and will keep the government running until mid-November.

The House leadership squabble could eat up time needed to reach a long-term funding agreement. A government shutdown would have a substantial impact on the SEC.

“If a new speaker isn’t chosen in the next few weeks, negotiating with the Senate and White House would be impossible,” Zona said. “A prolonged government shutdown would impact the rulemaking process at every agency.” 

It’s not likely McHenry will be a candidate for full-time speaker, Dalal said. He is in the middle of working on major legislation, including a measure on digital assets.

“He wants to continue to leave a mark as chair,” Dalal said. “I think he’s genuinely interested in finishing his term.” 

McCarthy didn’t reach out for Democratic votes to save his job. His successor probably won’t pursue a power-sharing agreement either, Dalal said. If Democrats gained more say in the House, it might change the tenor toward the SEC.

“If there were a realistic proposal, it would have been McCarthy’s deal to cut,” Dalal said. “I don’t think anyone else who wants to maintain control of the Republican caucus would entertain that.”

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