SEC Gives Franklin Templeton More Room to Bring Funds Onchain
The U.S. Securities and Exchange Commission's Division of Investment Management has given Franklin Templeton a regulatory path for its traditional registered funds to invest in the blockchain-recorded Franklin OnChain U.S. Government Money Fund, known as BENJI, without complying with parts of a custody rule designed around physical securities stored in vaults.
Summary:
- SEC staff granted Franklin Templeton no-action relief under 1940 Act custody rules.
- Franklin funds can use BENJI for cash management and securities-lending collateral.
- The relief replaces physical-certificate requirements with blockchain-era controls.
- The decision is conditional and does not rewrite SEC custody rules for the wider market.
The August 12 no-action letter is narrow and specific to Franklin’s structure, but it matters because it removes a practical obstacle to using a tokenized money market fund inside conventional mutual fund and closed-end fund operations.
The problem was not BENJI’s assets, but how ownership is recorded
BENJI, formally the Franklin OnChain U.S. Government Money Fund, is not an unregulated crypto product. It is a U.S.-registered government money market fund operating under Rule 2a-7 and invests at least 99.5% of assets in U.S. government securities, cash and fully collateralized repurchase agreements. Franklin reported $753.24 million in net assets as of June 30, with a stable $1 share price and a 3.62% seven-day effective yield as of August 6.
The regulatory friction came from custody.
Section 17(f) of the Investment Company Act of 1940 and Rule 17f-2 contain requirements built for an era in which securities could exist as physical certificates. Among other things, Rule 17f-2 assumes securities placed in self-custody can be physically segregated in a vault. SEC staff explicitly noted that the rule assumes actual physical possession of underlying securities.
Franklin Templeton Investor Services, or FTIS, maintains the official shareholder record through an integrated system combining a conventional internal book-entry database with one or more blockchains. The blockchain records transaction information such as purchases, redemptions, dividend distributions, NAVs and trade dates, while sensitive shareholder information remains in Franklin’s internal records.
A blockchain-recorded fund share cannot be placed inside a physical vault. Applying those provisions literally would therefore create a custody requirement that does not fit the asset’s recordkeeping architecture.
What the SEC actually allowed Franklin to do
The SEC staff said it would not recommend enforcement action if Franklin-affiliated registered funds hold BENJI shares through FTIS without complying with paragraphs (b), (e) and (f) of Rule 17f-2, provided Franklin follows the safeguards described in its request.
That gives Franklin funds flexibility to use BENJI for two particularly practical purposes:
- Cash management, including temporary investment of portfolio cash.
- Securities-lending collateral, where funds receive cash that must itself be managed efficiently.
The operational advantages are not theoretical. Franklin told the SEC that BENJI can provide hourly NAV calculations, intraday trading, faster transaction processing, potential cost reductions and enhanced data security compared with the cash-management vehicle currently used by its funds.
That makes the ruling more consequential than simply allowing one Franklin fund to buy another.
A money market fund often sits deep inside the operational machinery of an asset manager. Portfolio managers use it to park cash between trades, manage liquidity and invest collateral. Bringing an onchain vehicle into those workflows means blockchain infrastructure can be used within an ordinary 1940 Act fund without requiring the end investor to interact with a wallet or even know that blockchain settlement sits underneath the product.
The SEC did not eliminate custody controls
The relief should not be described as the SEC “waiving custody rules” broadly.
Staff granted a no-action position, not an exemption applying across the market, and explicitly said the letter has no legal force, does not alter applicable law and is based on Franklin’s specific representations.
Franklin also accepted 12 operating conditions intended to reproduce the protections that physical custody rules were originally designed to provide.
Those controls explain why the SEC was comfortable treating BENJI differently from a bearer-style crypto asset whose ownership may depend solely on possession of a private key.
The private key is not the final authority over ownership
This is one of the most important features of Franklin’s architecture.
FTIS controls the official master securityholder file, the permissioning system, smart-contract administrative functions and the links between blockchain records and internal shareholder records. It can correct unauthorized transactions, freeze or migrate wallet records, create replacement wallets and restore the official ownership record.
That means BENJI is blockchain-based without adopting the irreversible ownership model associated with assets such as Bitcoin.
If a wallet private key were stolen, the attacker would not necessarily acquire an uncontestable legal claim to the fund shares.
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Franklin’s transfer agent remains empowered to determine and restore the official ownership record.
For traditional fund managers, that distinction is critical. The blockchain can provide faster recordkeeping and settlement without forcing a regulated investment company to accept the operational model of a permissionless bearer asset.
Why this could matter more than another tokenized fund launch
Tokenization announcements have become common, but many remain isolated products distributed primarily to crypto-native or institutional investors.
The Franklin relief addresses a different problem: how tokenized assets enter existing portfolio infrastructure.
BENJI launched in 2021 as the first U.S.-registered mutual fund to use a public blockchain as its official system of record. Franklin says the broader BENJI suite reached $1.98 billion in assets by April 29, while its investor count increased more than 140% between
April 2024 and March 2026. The U.S. FOBXX vehicle itself reported $753.24 million in net assets at the end of June.
The distinction between those figures is important because BENJI refers to a broader platform and suite, while FOBXX is the specific U.S. money market fund covered by the SEC letter.
Allowing Franklin’s conventional funds to use that vehicle internally creates a route for tokenization to affect investors who never directly purchase a tokenized security.
A traditional mutual fund shareholder could indirectly benefit from more frequent cash pricing or faster processing even though the investor continues buying and redeeming ordinary fund shares through familiar channels.
Why hourly pricing and intraday trading matter for fund operations
Traditional money market funds already provide high liquidity, so the advantage of blockchain here is not that BENJI suddenly makes government debt liquid.
The potential improvement is in operational timing.
If a portfolio receives cash during the trading day, a vehicle with intraday trading and hourly NAV calculations can potentially put that money to work sooner rather than waiting for a narrower processing window. The same logic applies when securities-lending collateral moves between counterparties.
Faster processing can reduce idle cash and make treasury operations more responsive.
The benefit may appear small on an individual trade, but institutional asset managers process large volumes of cash movements across many portfolios. Incremental operational savings can therefore become meaningful when applied repeatedly at scale.
The SEC letter does not establish that Franklin will achieve lower costs. It only records Franklin’s representation that the structure has the potential to reduce them.
The decision offers a template, not an industry-wide permission slip
The strongest implication is regulatory rather than technological.
SEC staff effectively accepted the argument that investor-protection objectives embedded in an old custody rule can, under certain circumstances, be met through modern controls rather than literal compliance with requirements designed for certificated securities.
That may be relevant to other asset managers pursuing tokenized funds, but they cannot automatically rely on Franklin’s letter.
Another firm would need to assess whether its structure provides comparable segregation, key management, transfer-agent authority, reconciliation, board oversight and independent verification. Different facts could produce a different SEC response, which the staff explicitly emphasized.
The next development worth watching is therefore whether other fund groups seek similar relief or whether the Commission eventually modernizes Rule 17f-2 itself. If requests begin arriving from multiple managers, Franklin’s letter could become an early operational precedent for integrating tokenized securities into conventional fund portfolios rather than keeping onchain finance in a parallel product category.
The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.
Alexander Stefanov
Reporter at CoinsPress
Alex is Editor-in-Chief of Coinspress and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets - crypto first, then everything else. It started in 2016 with Bitcoin. Like most people at the time, he didn't fully understand it - so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can't properly understand one without the other. What drives him is straightforward: he wants to know why something is happening, not just that it's happening. Most market coverage stops at the headline - price up, price down, here's a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn? He holds a degree in Tourism from New Bulgarian University - not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That's probably why he hasn't stopped.
