United States: Dead Rules Walking: The SEC Removes Two Zombie Rules

By: Thoreau Bartmann and Marguerite Laurent

Key Takeaways

On 4 August 2026 the SEC deleted two long dead requirements from its rulebook. SEC.gov | Investment Company Governance Technical Amendments. Specifically, the SEC deleted a requirement that 75% of a fund board be independent and that the board chair be independent, both provisions that had been struck down by a court in 2006, yet were still in the rulebook twenty years later.

What Happened

The Investment Company Act of 1940, as amended (the 1940 Act) requires that at least 40% of a regulated fund board be “disinterested.” In 2001, the SEC established fund governance standards for regulated funds that choose to rely on various exemptive rules that permit the funds to do certain things the 1940 Act would otherwise prohibit, such as trading with an affiliated fund, merging with one, or paying distribution costs out of fund assets. Then, in 2004, the SEC enhanced these fund governance standards to add seven additional requirements including that fund boards be 75% independent and have an independent board chair. Two years later, the DC Circuit threw out those two requirements in Chamber of Commerce v. SEC, holding that the SEC had not followed proper rulemaking procedures to establish those requirements. However, the text of the stricken rules was never removed from the Code of Federal Regulations (CFR), which officially publishes all federal rules.

Why It Matters

Leaving invalid rule text in the CFR created a small but real ambiguity. When a court vacates a rule amendment, the prior version generally springs back. Here that meant the 2001 standard, which called for a majority independent board, not 75% independent, should have been restored to the CFR. A reader working from the published rule had no way to tell which number governed and may unnecessarily “comply” with the higher standard. The SEC has made clear that only a majority is required. This has little real impact, as most informed fund boards are aware of the legal history surrounding these standards and the true requirements; nonetheless it helps to avoid any ambiguity or confusion going forward.