As midterm elections draw near, financial industry officials say even a modest GOP victory could result in increased congressional scrutiny of SEC Chairman Gary Gensler and his agency's policies.

Polls suggest that Republicans should be able to regain control of the House and quite possibly the Senate. If either scenario materializes, it will pose a challenge to Gensler's initiatives regarding ESG, advisor regulation and other issues likely to come under attack in congressional hearings.

“There is abundant concern and skepticism on Capitol Hill regarding Chair Gensler’s ambitious rulemaking agenda, with much of it focused on the inadequate time for thoughtful comment and response on the SEC’s proposals," said Neil Simon, vice president for government relations at the Investment Adviser Association. "We expect that he’ll be called to testify more frequently in a Republican-controlled Congress and that he could face a more adversarial reception."

At least one analyst sees the GOP taking both the House and the Senate.

“All 435 House seats are being contested. Republicans need a net gain of six seats to win the majority," said Brian Gardner, chief Washington policy analyst at Stifel. "A president’s party historically loses 27 seats on average in a midterm election during the president’s first term, so history plus polling data suggest that Republicans are well positioned to win control of the House."

In the Senate, 32 seats are being contested and Republicans need a net gain of one seat to take control of the Senate, while Democrats can retain the majority if they maintain the current 50-50 split.

“Our forecast: Republicans gain three Senate seats,” Gardner said.

Even if that happens, President Biden will still retain veto power, which will mean continuing legislative gridlock, Gardner and others said.

But that doesn’t mean there won’t be investigations and oversight hearings, Simon said.

Richard P. Galena, counsel at Miller and Chevalier and a former special assistant to the U.S. Attorney’s Office in Maryland, also believes that Gensler will be in the hotseat.

“In terms of what a Republican Congress could mean for regulatory enforcement, I think we’re going to see increased scrutiny at the SEC and, in particular, of Chairperson Gary Gensler. Earlier this week, House Republicans gave us a preview of what this could look like when they sent a letter Gensler in an attempt to highlight inconsistencies within the SEC regarding the use of off-channel communications platforms such as WhatsApp,” said Galena, who specializes in SEC said.

Robin Traxler, senior vice president for policy and deputy general counsel at the Financial Services Institute, said if Republicans gain the majority in the Congress, “we could see an increased push for less regulation through hearings. That would leave progressives with less of a voice, so they may try to achieve their policy priorities through the agencies due to legislative gridlock and opposition.”

Traxler said she expects to see “a continued pro-regulatory environment with aggressive enforcement. The DOL will continue to pursue its new independent contractor rule, which is a major issue for our members. We also expect DOL to release a new fiduciary standard for investment advice which is likely to seek to achieve similar goals as its 2016 proposal.

“The SEC will continue its focus on conflicts of interest and Regulation Best Interest enforcement, particularly related to digital engagement practices and gamification,” Traxler said.

Regardless of whether Republicans or Democrats have control of Congress, “there is bipartisan interest in pursuing legislation on cryptocurrency regulation, insider trading and big tech concerns,” she added.

Duane Thompson, president of Potomac Strategies, a legislative and media relations consulting firm specializing financial services issues, said he would expect a GOP Congress to put the spotlight on Gensler and Lisa Gomez, assistant secretary of labor for employee benefits security at the U.S. Department of Labor. But he said that with a Democratic administration, the power of GOP legislators will be limited.

The House and Senate financial services committees "are very likely to invite or subpoena Gary Gensler or Lisa Gomez in and grill them over their proposals and agenda. But what can they do beside that?” he said.

While Congressional leaders can add legislative riders to appropriation bills to prohibit the SEC and DOL from using funding and staff appropriations to enforce particular rules, these types of riders usually get taken out before final passage of bills, Thompson said. “But I wouldn’t rule it out even if it is a long shot,” added Thompson, a former government relations director of the Financial Planning Association.

North Carolina’s Rep. Patrick McHenry, the top ranking GOP members of the House Financial Services Committee, is widely viewed as the committee's next chairman, and Sen. Tim Scott of South Carolina is seen as the leading contender to take over the Senate Committee on Banking, Housing and Urban Affairs, “although there is some speculation that he may want to run for president, which would direct his attention elsewhere,” Gardner predicted.

“A Republican win in the Senate could slow the Biden administration’s regulatory policy, but probably not as much as some investors think," Gardner added. "The theory is that a Republican Senate can block nominations to regulatory posts. However, key federal agencies are already under Democratic leadership and will remain so. In cases where a future vacancy occurs, the Biden administration can bypass the Senate and appoint acting agency heads, a tactic used during the Trump administration."

Simon said he is expecting “a great deal of GOP focus on ESG, including legislation to prevent advisers from considering so-called non-pecuniary factors in retirement plans," adding that legislation introduced by Kentucky Rep. Andy Barr and could gain some traction.

If Democrats retain control of the House and Senate, markets might sell off, Gardner said. However, there may still be a level of gridlock as the Senate majority would likely remain tightly split, and Democrats have shown how difficult it is to pass the Biden agenda through a 50-50 Senate, he added.