Franklin Templeton won U.S. Securities and Exchange Commission (SEC) staff backing for a blockchain-based custody arrangement involving its OnChain U.S. Government Money Fund, easing a regulatory issue created by rules written around physical securities.
The SEC’s Division of Investment Management said Wednesday it would not recommend enforcement action under Section 17(f) of the Investment Company Act or Rule 17f-2 if Franklin Templeton’s affiliated funds use the proposed arrangement to hold shares of the OnChain Fund, subject to a set of operational and oversight conditions.
The staff position applies to the specific facts and representations in Franklin Templeton’s request. It is not a formal SEC rule, regulation, or legal determination, and the commission did not approve or disapprove the letter.
Relief addresses rules built around physical custody
The issue stems from Rule 17f-2, which includes custody requirements designed for securities held in physical or certificated form.
Franklin Templeton proposed having its affiliated transfer agent, Franklin Templeton Investor Services LLC, or FTIS, maintain the official ownership records for shares of the OnChain Fund through a system combining conventional book-entry records with blockchain technology.
Because FTIS is affiliated with the funds, the arrangement is treated as a form of self-custody under the rule. The funds argued that certain provisions requiring physical segregation and related procedures were not suited to blockchain-recorded fund shares.
The SEC staff accepted that reasoning for the limited purpose of its no-action position.
Blockchain becomes part of the ownership record
FTIS maintains the OnChain Fund’s master securityholder file through an integrated system. The system combines an internal database containing private shareholder information with blockchain records covering transactions such as purchases, redemptions, distributions, and net asset values. FTIS links the two sets of records in real time to maintain the official ownership record.
The OnChain Fund currently uses the Stellar blockchain as its primary public blockchain, although the SEC letter says other networks may be used for certain accounts subject to eligibility.
For each investing fund, FTIS will create a separate blockchain wallet and retain control of the associated private key.
Custody comes with additional controls
The staff’s relief is conditional on a series of safeguards. Among other requirements, each investing fund must maintain procedures designed to prevent unauthorized instructions. FTIS must maintain administrative controls that allow it to correct unauthorized transactions, freeze or migrate wallet records and restore the official ownership record when necessary.
The funds’ boards must approve the arrangements and review them at least annually. Holdings must be separately recorded for each fund, while transaction confirmations must be provided to the funds and reconciled against their authorizations on a daily basis.
Independent public accountants must also compare FTIS’s records with the funds’ books at least three times during each fiscal year, with at least two of those checks conducted without advance notice.
Franklin plans to use the structure for cash management
The funds seeking the relief want to invest in the OnChain Fund for cash management, including the investment of cash balances and securities-lending collateral.
Franklin Templeton’s filing pointed to features of the OnChain Fund such as hourly net asset value calculations, intraday trading and faster transaction processing as reasons for using the structure.
The OnChain Fund is a government money-market fund operating under Rule 2a-7 of the Investment Company Act. The SEC’s own April 2026 statistics list Franklin Templeton’s fund among registered tokenized money-market funds whose ownership records are maintained in whole or in part through crypto networks.
Franklin expands its digital-asset push
The SEC staff relief comes as Franklin Templeton expands its broader digital-asset business. In July, the asset manager backed the CLARITY Act, saying the proposed legislation would provide clearer rules on how crypto assets are regulated and which regulators oversee market participants.
Franklin Templeton also expanded its crypto operations in June by completing the acquisition of 250 Digital, bringing the firm’s investment team and actively managed cryptocurrency strategies under its umbrella. The company also launched Franklin Crypto, a dedicated digital-asset management business focused on institutional clients.
The moves add to Franklin Templeton’s existing work with blockchain-based investment products, including its OnChain U.S. Government Money Fund.
Staff action builds on 1992 Franklin precedent
The SEC staff based its analysis in part on a 1992 no-action letter involving Franklin Investors Securities Trust. That earlier case involved an affiliated transfer agent maintaining fund shares in book-entry form rather than physical certificates. The latest request presented a similar custody structure, with blockchain records replacing part of the traditional recordkeeping process.
The distinction is important because the latest letter does not create a broad exemption for tokenized securities. The SEC staff explicitly said its position is limited to the facts and representations presented by Franklin Templeton. The letter also says the position has no legal force or effect and does not alter or amend existing law.
For Franklin Templeton, the decision provides a regulatory path for affiliated investment funds to hold shares of a blockchain-recorded money-market fund without applying certain Rule 17f-2 procedures that assume physical securities.
Also Read: Fidelity Seeks SEC Approval to Add Staking to Ethereum ETF
