The U.S. Securities and Exchange Commission's Division of Investment Management has issued a no-action letter permitting Franklin Templeton's registered investment funds to hold shares of the firm's tokenized money market fund through a blockchain-integrated custody system.

The decision, disclosed Wednesday, allows conventional mutual funds and ETFs within the Franklin Templeton family to invest in the Franklin OnChain U.S. Government Money Fund—commonly known as BENJI—for cash management purposes, without complying with paragraphs (b), (e), and (f) of Rule 17f-2 under the Investment Company Act of 1940, which govern physical vault custody and certificate notation. The 1940 Act's custody rules were written decades before blockchain technology existed, and the letter represents one of the SEC's most concrete steps toward accommodating on-chain fund infrastructure within that legacy framework.

BENJI launched on the Stellar blockchain in 2021 and has since expanded to Ethereum and Solana. The fund invests primarily in U.S. government securities and seeks to maintain a stable $1 share price. According to data from RWA.xyz, the fund currently holds approximately $726 million in assets under management. Franklin Templeton has been among the most aggressive traditional asset managers in adopting blockchain for fund operations, and BENJI is one of several tokenized money market and treasury products that have grown rapidly as institutional interest in real-world asset tokenization has accelerated.

The SEC staff determined that the proposed arrangement was sufficiently analogous to a 1992 no-action letter—also involving Franklin—which permitted affiliated master-feeder fund custody through book-entry records rather than physical certificates. No-action letters express staff views on whether enforcement action would be recommended for specific arrangements; they do not carry the force of law or create binding precedent, but they are widely used by the investment management industry to obtain regulatory comfort before implementing novel structures. Bloomberg analyst James Seyffart noted that the letter effectively "opens the door" for Franklin's registered funds to hold the OnChain product, even though it does not technically satisfy traditional 1940 Act custody requirements. The investing funds anticipate operational benefits including hourly net asset value calculations, intraday trading, faster settlement, and reduced costs.

Custody Architecture and Regulatory Safeguards

Under the approved structure, Franklin Templeton Investor Services (FTIS)—a registered transfer agent and affiliate of the funds—will serve as custodian while maintaining the official master securityholder file through a proprietary system that links internal book-entry records with anonymous transactional data on the blockchain.

FTIS will create and control segregated Stellar wallets for each investing fund, securing private keys through multi-signature and multi-party computation techniques with geographically distributed signers and offline recovery capabilities. Critically, FTIS retains unilateral administrative authority to correct errors or unauthorized transactions, freeze or migrate wallet records, and restore the official ownership record regardless of blockchain entries.

The staff's no-action position is conditioned on rigorous ongoing safeguards. Each fund's board of trustees must approve and annually review the arrangement. Transaction confirmations must be routed to authorized personnel separate from those initiating instructions, and all activity must undergo daily reconciliation against the fund's transaction authorizations.

Additionally, independent public accountants must perform at least three verifications each fiscal year—at least two without prior notice—comparing FTIS's transfer agent records with the books of both the investing fund and BENJI. Transition protocols require FTIS to deliver all administrative controls, smart contract permissions, and official records to any successor transfer agent upon departure.

The SEC emphasized that the letter reflects staff views only, carries no legal force, and does not alter or amend applicable law.