SEC has told Franklin Templeton it will not recommend enforcement action if the firm’s U.S.-registered funds hold shares of its blockchain based money market fund as a cash management vehicle, easing a decades-old custody requirement for the arrangement. The position is set out in a staff no-action letter from the Division of Investment Management dated 12 August 2026.
The relief is narrow and specific. It concerns Section 17(f) of the Investment Company Act of 1940 and Rule 17f-2 thereunder, and it waives only paragraphs (b), (e) and (f) of that rule, the parts written for physical certificates kept in a vault.
Because shares of the Franklin OnChain U.S. Government Money Fund (the fund behind Franklin’s “BENJI” token, ticker FOBXX) exist purely in book entry and blockchain form, those physical custody steps cannot apply. And because the fund’s transfer agent, Franklin Templeton Investor Services LLC (FTIS), is an affiliate, holding the shares through it counts as “self-custody” under Rule 17f-2, which is why the staff’s sign-off was sought.
In the operative line, staff wrote that they “would not recommend enforcement action to the Commission under section 17(f) and Rule 17f-2 if FTIS acts as custodian for the Funds with respect to the Funds’ investments in shares of the OnChain Fund, without compliance with paragraphs (b), (e) and (f) of Rule 17f-2”, subject to a list of conditions.
Why Franklin wanted it
The funds are seeking the flexibility to park cash, including cash balances and securities lending collateral, in the tokenised fund. According to the representations in the letter, the on-chain fund offers operational features their current cash management vehicle does not: hourly net-asset-value calculations, intraday trading, faster transaction processing, the potential for reduced costs and, Franklin argues, enhanced data security.
How the on-chain custody works
FTIS keeps the official record of who owns what: the “master security holder file” on a proprietary system it calls the Integrated System, which stitches together an internal book-entry ledger (holding private shareholder data) with one or more blockchains that record transactional information. Fund wallets are created on the Stellar network, with FTIS holding and securing the private key for each wallet, behind a layered setup of multi-signature and multi-party computation controls, geographically and operationally distributed signers, and offline recovery.
Crucially, FTIS also retains a separate set of “administrative controls” that let it correct, freeze, migrate or restore records. In Franklin’s argument, that means a compromised or misused wallet key could not, by itself, establish a different official ownership record or stop FTIS from maintaining the correct one: the private keys sign transactions but do not displace FTIS’s transfer-agent authority over the official record.
Staff relied on its own 1992 no-action letter to Franklin Investors Securities Trust, which had blessed an affiliated fund holding another fund’s shares in book-entry form rather than as vault-kept certificates. The blockchain wrapper, staff accepted, does not change the core point: FTIS remains the party charged with, and empowered to, maintain the official record of share ownership, with unilateral control over it.
The strings attached
The no-action position is conditioned on roughly a dozen safeguards. Among them: each fund’s board of trustees must approve the arrangement and review it at least annually; FTIS must keep each fund’s holdings segregated in its own account and its own separate blockchain wallet; it must send confirmations of transactions and internal-control reports to each fund; limit the number of people authorised to transmit instructions, and enforce passwords, authentication factors and cryptographic controls; hand over both the records and the administrative controls to any successor transfer agent should it step down; and submit to three annual verifications by an independent public accountant that reconcile its transfer-agent records against the funds’ and the OnChain Fund’s books.
Why it matters
For the wider tokenisation market, the letter is a notable signal that a mainstream, regulated fund complex can use a tokenised money market fund as on-chain cash management within the 1940 Act framework.
But the framing matters. This is a staff no-action position, not a Commission order, a rule change or a broad new authorisation. It binds no one, applies only to the specific facts Franklin represented, and can be withdrawn or revisited.
Read narrowly, staff did not bless “crypto cash management” in general; they accepted that an affiliated transfer agent holding tokenised shares of an affiliated money fund is close enough to a 30-year-old book entry precedent to skip the vault rules, provided the safeguards hold.
