Key Takeaways
- • The SEC issued a no-action letter allowing Franklin Templeton's registered funds—including mutual funds and ETFs—to hold shares of BENJI, its $726 million blockchain-based U.S. government money market fund, without satisfying traditional custody requirements designed for physical securities.
- • The regulatory relief specifically addresses Section 17(f) and Rule 17f-2 of the Investment Company Act of 1940, which previously created a mismatch between tokenized fund infrastructure and custody frameworks built for paper certificates and vaults.
- • BENJI (Franklin OnChain U.S. Government Money Fund, ticker FOBXX) maintains a stable $1 share price, invests at least 99.5% of assets in U.S. government securities with maturities of 60 days or less, and operates across multiple blockchain networks including Stellar (launched 2021), Ethereum, and Solana.
- • Franklin Templeton's hybrid record-keeping system combines internal book-entry records with on-chain transaction data, enabling the company to connect its traditional registered investment products with its onchain cash-management infrastructure while maintaining SEC-approved safeguards.
- • This decision does not create a broad exemption for all tokenized funds from custody rules; rather, it establishes a defined compliance pathway specific to Franklin Templeton's structure and product design.
Summary
The U.S. Securities and Exchange Commission has granted Franklin Templeton a significant regulatory green light by issuing a no-action letter permitting its traditional registered funds to invest directly in BENJI, the firm's blockchain-based money market fund. The clearance resolves a custody framework obstacle that previously prevented Franklin's mutual funds and ETFs from holding shares of the onchain fund for cash-management purposes.
The regulatory relief addresses a longstanding structural incompatibility between blockchain-based asset custody and twentieth-century securities regulations. Specifically, the SEC's approval concerns Section 17(f) and Rule 17f-2 of the Investment Company Act of 1940—provisions governing how registered investment companies hold assets in their own custody. These rules were written for physical securities certificates stored in vaults and do not accommodate tokenized fund shares recorded through distributed ledger infrastructure. The SEC's Division of Investment Management determined it would not recommend enforcement action against Franklin Templeton if the company implements BENJI under the described structure and complies with specified safeguards.
BENJI (formally the Franklin OnChain U.S. Government Money Fund, trading under ticker FOBXX) manages approximately $726 million in assets. The fund targets a stable $1 share price while investing at least 99.5% of total assets in U.S. government securities with maximum maturities of 60 days or less. Originally launched on the Stellar network in 2021, BENJI has subsequently expanded to Ethereum and Solana, broadening its accessibility across multiple blockchain ecosystems.
The fund's operational architecture combines Franklin Templeton's traditional internal book-entry record-keeping systems with transaction information recorded on blockchain networks. This hybrid approach allows the firm to maintain compliance with SEC requirements while leveraging blockchain infrastructure for settlement and asset management. Each BENJI token represents one share of the underlying government money market fund and is available to U.S. investors through Franklin Templeton's distribution channels.
Critically, this no-action letter does not represent a blanket exemption for all tokenized funds from custody rules, nor does it establish broad precedent for the industry. Instead, it provides a specific compliance pathway tailored to Franklin Templeton's product structure and operational safeguards, potentially serving as a regulatory template for similar institutional-grade blockchain-based financial products.
The regulatory relief addresses a longstanding structural incompatibility between blockchain-based asset custody and twentieth-century securities regulations. Specifically, the SEC's approval concerns Section 17(f) and Rule 17f-2 of the Investment Company Act of 1940—provisions governing how registered investment companies hold assets in their own custody. These rules were written for physical securities certificates stored in vaults and do not accommodate tokenized fund shares recorded through distributed ledger infrastructure. The SEC's Division of Investment Management determined it would not recommend enforcement action against Franklin Templeton if the company implements BENJI under the described structure and complies with specified safeguards.
BENJI (formally the Franklin OnChain U.S. Government Money Fund, trading under ticker FOBXX) manages approximately $726 million in assets. The fund targets a stable $1 share price while investing at least 99.5% of total assets in U.S. government securities with maximum maturities of 60 days or less. Originally launched on the Stellar network in 2021, BENJI has subsequently expanded to Ethereum and Solana, broadening its accessibility across multiple blockchain ecosystems.
The fund's operational architecture combines Franklin Templeton's traditional internal book-entry record-keeping systems with transaction information recorded on blockchain networks. This hybrid approach allows the firm to maintain compliance with SEC requirements while leveraging blockchain infrastructure for settlement and asset management. Each BENJI token represents one share of the underlying government money market fund and is available to U.S. investors through Franklin Templeton's distribution channels.
Critically, this no-action letter does not represent a blanket exemption for all tokenized funds from custody rules, nor does it establish broad precedent for the industry. Instead, it provides a specific compliance pathway tailored to Franklin Templeton's product structure and operational safeguards, potentially serving as a regulatory template for similar institutional-grade blockchain-based financial products.
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