SEC Finally Fixes 20-Year-Old Fund Governance Court Blunder
Published Date: 8/6/2026
Rule
Summary
The Securities and Exchange Commission (the "Commission") is adopting technical amendments to a rule under the Investment Company Act of 1940 (the "Investment Company Act") related to registered investment company and business development company (collectively "regulated funds") governance standards to reflect a Federal court's vacatur of certain amendments to those standards that the Commission adopted on July 27, 2004. The court's vacatur of the amendments was effective as of July 6, 2006, and had the legal effect of reverting the fund governance standards to those standards in effect before adoption of the vacated requirements. These technical amendments revise the Code of Federal Regulations (the "CFR") to reflect the court's vacatur.
Analyzed Economic Effects
2 provisions identified: 1 benefits, 1 costs, 0 mixed.
Independence Rule Reverted to Majority
If you invest in a registered investment company or business development company, their board now only needs a simple majority of disinterested directors. The previous requirements that at least 75% of directors be disinterested and that the chairman be a disinterested director have been removed in the CFR; this change is reflected effective August 6, 2026 and follows a court vacatur that became effective July 6, 2006.
Other Board Protections Remain Intact
If you invest in regulated funds, several board governance protections remain in effect: disinterested directors must select and nominate other disinterested directors; disinterested directors must meet at least quarterly without interested persons; they must evaluate board performance at least annually; independent legal counsel for disinterested directors is required; and disinterested directors may hire employees and retain advisers. These provisions are set out in rule 0-1(a)(7) as revised and remain unchanged.
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