Investment Company Governance Technical Amendments
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") rela...
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.
DATES:
This release was published in the
Federal Register
on August 6, 2026. Effective August 6, 2026. The Federal court issued its vacatur of the rule amendments on April 7, 2006.
FOR FURTHER INFORMATION CONTACT:
Claudia Rios, Senior Counsel; Bradley Gude, Branch Chief; Brian McLaughlin Johnson, Assistant Director, at (202) 551-6792, Investment Company Regulation Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION:
The Commission is adopting technical amendments to rule 0-1(a)(7) [17 CFR 270.0-1(a)(7)] under the Investment Company Act.
I. Background
Rule 0-1(a)(7) sets forth governance standards that regulated funds must meet in order to rely on various exemptive rules under the Investment Company Act.[1]
The Commission adopted fund governance standards in 2001 to enhance the independence and effectiveness of disinterested directors of regulated funds that choose to rely on these exemptive rules.[2]
These standards required that, among other things, boards have a majority of disinterested directors and were silent as to whether the chairman of the board needed to be disinterested. In 2004, the Commission amended these standards to encapsulate seven requirements, including, among other things, that at least seventy-five percent of the directors of the regulated fund be disinterested (the “75% requirement”) and a disinterested director serve as chairman of the board of the regulated fund (the “chairman requirement”). Those amendments became effective on September 7, 2004.[3]
In 2006, a Federal court of appeals vacated the 75% requirement and the chairman requirement.[4]
The Court's action did not address the other requirements of rule 0-1(a)(7) that were amended in 2004, such as a requirement that disinterested directors of the fund select and nominate any other disinterested director of the fund. The court's vacatur of the 75% and chairman requirements went into effect July 6, 2006,[5]
thereby reverting the fund governance standards to those standards as previously in effect before September 7, 2004. These technical amendments reflect the court's vacatur in the CFR by removing the 75% requirement and the chairman requirement, and reverting to the requirement of a simple majority of directors of the regulated fund be disinterested directors. The other provisions of rule 0-1(a)(7), which were not subject to the court's vacatur, remain unchanged.
II. Procedural and Other Matters
The Administrative Procedure Act (the “APA”) generally requires an agency to publish notice of a rulemaking in the
Federal Register
and provide an opportunity for public comment. This requirement does not apply, however, if the agency “for good cause finds . . . that notice and public procedure thereupon are impracticable, unnecessary, or contrary to the public interest.” [6]
The technical amendments do not impose any new substantive regulatory requirements on any person and merely reflect the court's vacatur of the 75% requirement and chairman requirement. For these reasons, for good cause, the Commission finds that notice and public comment are unnecessary.[7]
For similar reasons, although the APA generally requires publication of a rule at least 30 days before its effective date, the Commission finds there is good cause for the amendments to take effect on August 6, 2026.[8]
For purposes of Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (also known as the Congressional Review Act),[9]
the Office of Management and Budget (OMB) has determined the final rule is not a “major rule.” OMB also determined that this action is not a significant regulatory action under Executive Order 12866, and therefore it was not subject to Executive Order 12866 review.
(7)
Fund governance standards.
The board of directors of an investment company (“fund”) satisfies the
fund governance standards
if:
(i) A majority of the directors of the fund are not interested persons of the fund (“disinterested directors”);
(ii) The disinterested directors of the fund select and nominate any other disinterested director of the fund;
(iii) Any person who acts as legal counsel for the disinterested directors of the fund is an independent legal counsel as defined in paragraph (a)(6) of this section;
(iv) The board of directors evaluates at least once annually the performance of the board of directors and the committees of the board of directors, which evaluation must include a consideration of the effectiveness of the committee structure of the fund board and the number of funds on whose boards each director serves;
(v) The disinterested directors meet at least once quarterly in a session at which no directors who are interested persons of the fund are present; and
(vi) The disinterested directors have been authorized to hire employees and to retain advisers and experts necessary to carry out their duties.
2.
Role of Independent Directors of Investment Companies, Investment Company Act Release No. 24816 (Jan. 2, 2001) [66 FR 3733 (Jan. 16, 2001)]. Disinterested directors are directors that are not “interested persons” of the fund as defined in the Investment Company Act.
See 17 CFR 270.0-1(a)(7)(i);
see also15 U.S.C. 80a-2(a)(19) (defining “interested person”).
4.
See Chamber of Commerce of the United States
v.
SEC,
443 F.3d 890 (D.C. Cir. 2006) (“Chamber”). Specifically, the court determined that the adoption of the 75% requirement and the chairman requirement violated the Administrative Procedure Act by relying on materials that had not been provided to the public for notice and comment. In response, the Commission requested further public comment on the amendments but did not take action to appeal or modify the court mandate.
See, e.g.,
Investment Company Governance, Investment Company Act Release No. 27395 (Jun. 13, 2006) [71 FR 35366 (Jun. 19, 2006)]; Investment Company Act Release No. 27600 (Dec. 15, 2006) [71 FR 76618 (Dec. 21, 2006)].
7.
This finding also satisfies the requirements of 5 U.S.C. 808(2), allowing the amendments to become effective notwithstanding the requirement of 5 U.S.C. 801 (if a Federal agency finds that notice and public comment are impractical, unnecessary or contrary to the public interest, a rule shall take effect at such time as the Federal agency promulgating the rule determines). The amendments also do not require analysis under the Regulatory Flexibility Act.
See 5 U.S.C. 604(a) (requiring a final regulatory flexibility analysis only for rules required by the APA or other law to undergo notice and comment).
17 CFR 270.0-1(a)(7)
15 U.S.C. 80a-6(c)