Key Takeaways
- • SEC issues no-action letter to Franklin Templeton, clearing the way for registered funds (mutual funds and ETFs) to invest in BENJI/FOBXX, the firm's blockchain-based OnChain U.S. Government Money Fund, without satisfying certain 1940 Act physical-vault custody requirements.
- • Regulatory precedent cited: The SEC grounded its decision in Section 17(f) and Rule 17f-2 of the Investment Company Act of 1940, referencing a 1992 no-action letter involving Franklin to justify treating blockchain-based book-entry arrangements as equivalent to traditional physical certificate systems.
- • Operational advantages unlocked: The decision enables conventional Franklin funds to access faster transaction processing and more frequent pricing updates characteristic of BENJI's integrated record-keeping system, which combines internal book-entry data with transaction records on the Stellar blockchain.
- • Custody and control preserved: Franklin Templeton Investor Services maintains full control over blockchain wallets created on Stellar, private keys, administrative functions, and the official shareholder file, ensuring compliance with fiduciary standards while leveraging blockchain infrastructure.
- • First U.S.-registered onchain money market fund: BENJI achieved this distinction following an 18-month regulatory review with the SEC, with peer-to-peer share transferability extended to retail holders in May 2025.
Summary
The U.S. Securities and Exchange Commission's Division of Investment Management has issued a no-action letter to Franklin Templeton, authorizing the firm's traditional registered funds to hold shares of its OnChain U.S. Government Money Fund (FOBXX), commonly known as BENJI, for cash management purposes. This regulatory clearance represents a significant expansion of permissible uses for Franklin's blockchain-based infrastructure within the conventional mutual fund and ETF ecosystem.
The SEC's decision, posted on Wednesday, exempts Franklin's registered funds from certain physical-vault requirements under Section 17(f) and Rule 17f-2 of the Investment Company Act of 1940. According to Bloomberg analyst James Seyffart, the letter "opens the door for Franklin's registered funds (mutual funds, ETFs, etc) to hold its OnChain fund despite not technically satisfying 1940 Act custody rules." The agency justified this approach by citing a 1992 no-action letter also involving Franklin, establishing a regulatory precedent for treating integrated blockchain-based book-entry systems as functionally equivalent to traditional physical certificate arrangements.
The structure of BENJI's custody and control architecture proved central to the SEC's approval. Franklin's onchain fund relies on an integrated record-keeping system combining internal book-entry data with transaction records on the Stellar blockchain, while Franklin Templeton Investor Services maintains full control of blockchain wallets, private keys, administrative functions, and the official shareholder file. This arrangement preserves the transfer agent's ability to correct errors, restore records if needed, and manage all fiduciary responsibilities—addressing key regulatory concerns about custody and asset protection that might otherwise have posed barriers to approval.
By enabling registered funds to access BENJI, the clearance allows Franklin's conventional mutual funds and ETFs to benefit from operational advantages inherent to the onchain structure, including faster transaction processing and more frequent pricing updates compared to traditional money market fund infrastructure. This decision follows BENJI's achievement as the first U.S.-registered money market fund built on blockchain technology, itself the product of an 18-month regulatory review that culminated in peer-to-peer share transferability being extended to retail holders in May 2025. The no-action letter effectively bridges traditional asset management with blockchain infrastructure while maintaining robust custody protections and SEC oversight.
The SEC's decision, posted on Wednesday, exempts Franklin's registered funds from certain physical-vault requirements under Section 17(f) and Rule 17f-2 of the Investment Company Act of 1940. According to Bloomberg analyst James Seyffart, the letter "opens the door for Franklin's registered funds (mutual funds, ETFs, etc) to hold its OnChain fund despite not technically satisfying 1940 Act custody rules." The agency justified this approach by citing a 1992 no-action letter also involving Franklin, establishing a regulatory precedent for treating integrated blockchain-based book-entry systems as functionally equivalent to traditional physical certificate arrangements.
The structure of BENJI's custody and control architecture proved central to the SEC's approval. Franklin's onchain fund relies on an integrated record-keeping system combining internal book-entry data with transaction records on the Stellar blockchain, while Franklin Templeton Investor Services maintains full control of blockchain wallets, private keys, administrative functions, and the official shareholder file. This arrangement preserves the transfer agent's ability to correct errors, restore records if needed, and manage all fiduciary responsibilities—addressing key regulatory concerns about custody and asset protection that might otherwise have posed barriers to approval.
By enabling registered funds to access BENJI, the clearance allows Franklin's conventional mutual funds and ETFs to benefit from operational advantages inherent to the onchain structure, including faster transaction processing and more frequent pricing updates compared to traditional money market fund infrastructure. This decision follows BENJI's achievement as the first U.S.-registered money market fund built on blockchain technology, itself the product of an 18-month regulatory review that culminated in peer-to-peer share transferability being extended to retail holders in May 2025. The no-action letter effectively bridges traditional asset management with blockchain infrastructure while maintaining robust custody protections and SEC oversight.
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