The Office of Chief Counsel of the Division of Investment Management at the US Securities and Exchange Commission issued a no-action letter to Franklin Templeton on 12 August 2026. The letter states the views of the Division staff and is not a Commission rule or statement, and the staff based its position on the facts and representations set out in the incoming request of the same date.
The relief concerns Section 17(f) of the Investment Company Act of 1940 and Rule 17f-2 made under it, specifically paragraphs (b), (e) and (f) of that rule. Section 17(f) governs the custody of a registered investment company's securities and similar investments, and Rule 17f-2 sets the conditions on which a registered management company may keep those assets in its own custody or that of an affiliate. The staff stated that it would not recommend enforcement action to the Commission under Section 17(f) and Rule 17f-2 in respect of the arrangement described in the request.
The arrangement lets US registered open end and closed end investment companies advised by Franklin Templeton controlled advisers invest cash balances and securities lending collateral in the Franklin OnChain U.S. Government Money Fund, a government money market fund under Rule 2a-7. Franklin Templeton Investor Services LLC, an affiliated transfer agent, acts as custodian of those shares, which is why the staff treats the holdings as self-custody subject to Rule 17f-2. Ownership records sit in an Integrated System that combines an internal book entry system with one or more blockchains, primarily the Stellar network.
Twelve conditions attach to the staff position. Each fund's board must approve the arrangement and review it at least annually. Each fund's holdings must sit in a segregated account and a separate blockchain wallet. While it remains transfer agent, Franklin Templeton Investor Services must keep the controls needed to correct errors, freeze or migrate wallets and restore ownership records, and must transfer the shares, records and administrative controls to a successor if it ceases to act. Instruction authority must be limited to a small number of people, protected by passwords, authentication factors and cryptographic tools, with confirmations sent to authorised persons other than those who initiate instructions and reconciled daily against transaction authorisations. Each fund's independent accountants must examine the records at least three times in each fiscal year, at least twice without notice. The staff stated that different facts might require a different conclusion.
Licentium advises fund sponsors, transfer agents and digital asset service providers on custody and recordkeeping requirements for tokenised fund shares. Work we undertake includes reviewing self-custody arrangements against Rule 17f-2, documenting board approval and annual review processes, and designing wallet segregation and reconciliation controls for blockchain based share registers.