SEC Grants Franklin Templeton Relief for Blockchain Custody, Opening a New
The U.S. Securities and Exchange Commission has taken another significant step toward integrating blockchain technology with traditional investment markets, granting regulatory relief that could make it easier for Franklin Templeton to use blockchain-based infrastructure for the custody and recordkeeping of fund shares.
The development centers on Franklin Templeton's OnChain U.S. Government Money Fund, represented by the BENJI token, one of the most established examples of a regulated investment fund operating on public blockchain infrastructure.
The SEC's action is important because some of the rules governing investment-company custody date back to an era when securities were primarily represented by physical certificates and stored through traditional custodial arrangements.
The latest relief does not eliminate U.S. securities regulations or remove the custody requirements that apply to investment companies generally. Instead, it provides specific regulatory relief under the existing framework, allowing blockchain-based mechanisms to satisfy certain requirements under specified conditions.
That distinction matters.
The development is less about regulators abandoning traditional investor protections and more about adapting those protections to an increasingly digital financial system.
Franklin Templeton has been working on this model for several years. Its OnChain U.S. Government Money Fund launched in 2021 and became the first U.S.-registered mutual fund to use a public blockchain as its official system of record for transactions and share ownership.
The move could now have implications well beyond one fund.
As asset managers increasingly explore tokenized securities, money-market funds and other real-world assets, regulatory decisions surrounding blockchain custody could become an important part of the next phase of financial-market infrastructure.
A Regulatory Rule Written for a Different Era
At the heart of the issue is Rule 17f-2 under the Investment Company Act of 1940.
The rule establishes requirements concerning the custody of securities held by registered management investment companies.
For decades, these rules were designed around conventional securities custody, physical certificates, segregated records and independent verification procedures.
The financial system, however, has changed dramatically since those rules were created.
Securities today are overwhelmingly represented electronically.
Blockchain technology introduces another possibility.
Instead of relying entirely on conventional databases operated by financial institutions, ownership records can be maintained on a distributed ledger.
That creates a regulatory question that has become increasingly difficult to ignore.
If a blockchain can provide a reliable, auditable and tamper-resistant record of ownership, should a regulatory framework designed around older forms of recordkeeping automatically apply in exactly the same way?
The SEC's latest action involving Franklin Templeton suggests that regulators are becoming more willing to consider that question.
What the SEC Relief Actually Means
It is important not to describe the decision as the SEC simply "waiving the 1940s custody rules."
The regulatory action is more specific.
The SEC issued an order involving Franklin Templeton entities in April 2026, under the Investment Company Act, and the commission's broader regulatory agenda has also included consideration of how custody rules should be modernized for digital assets.
The distinction is important because investors remain protected by the broader securities framework.
The development instead shows regulators addressing the practical differences between traditional securities custody and blockchain-based ownership records.
For the financial industry, that could be considerably more meaningful than a simple exemption.
It suggests that blockchain infrastructure can potentially be incorporated into regulated financial products without requiring the entire regulatory system to be discarded.
Why BENJI Is at the Center of the Story
Franklin Templeton's BENJI has become one of the most prominent examples of tokenized traditional finance.
The underlying product is the Franklin OnChain U.S. Government Money Fund, commonly associated with the ticker FOBXX.
The fund invests in government securities and other eligible assets in accordance with its money-market-fund structure.
What makes it different is the way ownership and transactions are represented.
Shares can be represented by BENJI tokens on supported blockchain networks.
Franklin Templeton says the fund was the first U.S.-registered mutual fund to use a public blockchain as its official system of record for processing transactions and recording share ownership.
That makes BENJI an important experiment in the modernization of traditional finance.
Rather than creating a completely new crypto-native investment product, Franklin Templeton is taking a conventional regulated financial product and putting part of its operational infrastructure on blockchain rails.
That distinction is at the heart of the tokenization movement.
Tokenization Is Becoming a Bigger Part of Wall Street's Strategy
For years, blockchain discussions focused primarily on cryptocurrencies.
Bitcoin introduced decentralized digital money.
Ethereum expanded the concept toward programmable assets and applications.
The financial industry is now exploring another use case: tokenization.
Tokenization involves representing an asset or financial interest digitally on a blockchain.
That asset could be a Treasury instrument, money-market fund share, private credit position, real estate interest or another financial product.
The appeal is straightforward.
Blockchain infrastructure can potentially allow assets to move between participants more quickly while providing a transparent record of ownership and transactions.
But tokenization does not automatically make an asset decentralized.
A tokenized mutual fund remains a regulated financial product.
The underlying assets, fund manager, transfer agent, custodians and legal structure continue to matter.
The blockchain is essentially being used as a new technological layer within the existing financial architecture.
Faster Transactions Could Be One of the Biggest Benefits
One of the most frequently discussed advantages of tokenized funds is speed.
Traditional financial transactions can involve multiple intermediaries.
An order may need to pass through a broker, transfer agent, clearing system, custodian and other infrastructure before ownership is fully reflected across the financial system.
Blockchain networks can potentially simplify some of these processes by maintaining a shared record.
Franklin Templeton has highlighted the use of blockchain for transaction processing and share ownership in BENJI.
For investors and financial institutions, faster settlement could eventually translate into more flexible liquidity management.
It could also reduce certain operational costs.
However, blockchain does not eliminate every intermediary.
Regulated funds still require governance, compliance, transfer-agent functions, investor records and other controls.
The technology changes the infrastructure, not the underlying legal responsibilities.
More Frequent Pricing Could Change How Funds Operate
Another potential advantage is the ability to process transactions and update records more frequently.
Traditional mutual funds generally operate according to established valuation and dealing schedules.
Blockchain infrastructure can theoretically support transactions around the clock.
Franklin Templeton has previously emphasized the ability of its tokenized money-market fund to support peer-to-peer transfers and intraday features.
That creates an important possibility for financial markets.
If regulated investment products can operate with greater flexibility, they could become easier to integrate with digital asset markets.
A tokenized Treasury fund, for example, could potentially interact with blockchain-based payment systems, stablecoins and other tokenized assets without requiring every transaction to return to traditional financial infrastructure.
That is one reason major financial institutions are paying close attention to tokenization.
The $726 Million Figure Puts the Development in Perspective
The reported size of BENJI, around $726 million, is significant because it demonstrates that tokenization is no longer limited to small experimental projects.
A product with hundreds of millions of dollars in assets provides a more meaningful test of blockchain-based financial infrastructure.
It also gives regulators an opportunity to evaluate how digital ownership records operate under real market conditions.
The scale remains small compared with the enormous size of the traditional mutual-fund industry.
But that may be exactly what makes the experiment useful.
A regulated fund with meaningful assets can demonstrate whether blockchain infrastructure can function within existing investor-protection requirements.
Franklin Templeton Has Been Preparing for This Moment
Franklin Templeton's involvement in blockchain finance is not new.
The company has spent years developing digital-asset capabilities and discussing regulatory questions surrounding tokenized funds.
SEC records show that Franklin Templeton had already been engaging with the agency on digital-asset issues, including questions involving the Investment Company Act's custody requirements and the treatment of tokenized assets.
That history makes the latest regulatory development part of a much longer process.
Franklin Templeton has effectively been testing the boundaries of what a regulated investment product can look like when blockchain technology becomes part of its infrastructure.
The company is not alone.
Other major asset managers have also explored tokenized funds, Treasury products and digital representations of traditional assets.
The competitive landscape suggests that blockchain-based finance is increasingly being viewed as infrastructure rather than simply a speculative technology.
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Why the SEC's Approach Matters to the Industry
Regulatory uncertainty has been one of the biggest obstacles to institutional blockchain adoption in the United States.
Financial institutions can build technology relatively quickly.
The more difficult question is whether that technology fits within decades-old regulations.
A major asset manager cannot simply decide that blockchain is more efficient and ignore custody requirements.
It needs a legally defensible structure.
The SEC's willingness to provide targeted relief can therefore have a multiplier effect.
If one regulated fund demonstrates that blockchain-based custody can meet investor-protection standards, other financial institutions may become more comfortable exploring similar structures.
That could accelerate the tokenization industry.
Traditional Mutual Funds Could Eventually Gain Blockchain Exposure
The long-term significance of the development extends beyond BENJI.
If blockchain-based custody and recordkeeping become accepted within the regulatory framework, other traditional investment products could potentially adopt similar infrastructure.
That could include government bond funds, corporate bond funds, equity products and other investment vehicles.
The key question will be whether blockchain provides a meaningful operational advantage.
If it can reduce costs, accelerate settlement, improve transparency or enable new forms of liquidity, asset managers will have a strong incentive to adopt it.
If the technology does not produce measurable benefits, traditional systems may remain dominant.
The SEC's latest actions could therefore help determine which direction the market takes.
Blockchain Could Connect Traditional Finance With Digital Assets
One of the most interesting implications is the potential convergence between traditional finance and crypto markets.
For years, the two industries largely operated separately.
Banks and asset managers used traditional infrastructure.
Crypto companies operated on public blockchains.
Tokenization creates a bridge.
A government-money-market fund can exist within a regulated investment structure while also being represented on a blockchain.
Stablecoins can potentially interact with tokenized funds.
Digital wallets can potentially hold representations of traditional financial assets.
Blockchain-based applications can potentially interact with tokenized securities.
The result is a financial system in which the boundary between traditional finance and digital assets becomes increasingly difficult to define.
Regulatory Protection Still Matters
The enthusiasm surrounding tokenization should not obscure the importance of regulation.
A blockchain transaction can be technically secure while the underlying financial product still carries investment risk.
Tokenized assets are not automatically safe.
A token does not guarantee liquidity.
Smart contracts can contain vulnerabilities.
Blockchain networks can experience outages or congestion.
Investors can also misunderstand the legal rights associated with a token.
For these reasons, regulatory oversight remains important.
The significance of the SEC's action is precisely that blockchain technology is being considered within a regulated framework rather than outside it.
The SEC Is Looking More Broadly at Digital Asset Custody
The agency's work also indicates that the question is larger than Franklin Templeton.
The SEC's regulatory agenda includes consideration of amendments or new rules addressing custody requirements for advisory client and fund assets, including crypto assets.
That suggests regulators recognize that digital assets present technical and operational characteristics that did not exist when many current custody rules were established.
The challenge is finding a balance.
Regulators want to preserve safeguards around customer assets while allowing financial institutions to use modern technology.
Franklin Templeton's case provides one example of how that balance could work.
The Importance of the Transfer Agent
One detail that is sometimes overlooked in discussions about tokenized funds is the transfer agent.
In a traditional fund, the transfer agent plays an important role in maintaining shareholder records.
With a blockchain-based fund, the relationship between on-chain records and the official shareholder record becomes especially important.
Franklin Templeton has described BENJI as using blockchain as the official system of record for transactions and share ownership.
That creates a different operational model.
Instead of treating blockchain as merely a secondary database, the ledger becomes part of the core infrastructure.
This is one of the reasons regulatory approval matters so much.
The industry needs clarity on how blockchain records interact with legal ownership and traditional financial controls.
What This Could Mean for Investors
For ordinary investors, the immediate impact may not be dramatic.
Most people will not suddenly see their mutual funds transformed into blockchain tokens.
The transition will likely happen gradually.
But the underlying infrastructure could change significantly over time.
Investors could eventually gain access to financial products that can be transferred more efficiently, operate across longer hours and interact with digital payment systems.
The user experience could remain familiar even though the technology underneath has changed.
This is often how financial infrastructure evolves.
Consumers do not necessarily need to understand the underlying technology.
They simply notice that transactions are faster, more convenient or available in more places.
Wall Street's Blockchain Experiment Is Becoming More Serious
The evolution of BENJI illustrates a broader change in institutional attitudes toward blockchain.
A few years ago, many traditional financial institutions treated blockchain as an experimental technology.
Today, major asset managers are exploring ways to use it for real-world financial products.
The focus is increasingly moving away from speculative tokens and toward infrastructure.
That shift could prove more consequential for the financial industry than another cycle of cryptocurrency price speculation.
If blockchain becomes the settlement layer for tokenized securities, the technology could eventually become embedded in financial markets without most investors thinking of themselves as blockchain users.
The Bigger Picture for Tokenized Assets
Tokenization could ultimately affect trillions of dollars in assets.
The global financial system contains enormous pools of bonds, equities, money-market instruments, private credit and other securities.
Even a small percentage moving onto blockchain infrastructure would represent a substantial transformation.
The critical question is not whether every financial asset will become tokenized.
It is whether tokenization can offer enough economic value to justify the transition.
Developments involving Franklin Templeton suggest that at least some regulated financial products may already be demonstrating practical benefits.
A Turning Point for Digital Finance
The latest SEC action should therefore be viewed in a broader context.
It is not simply a story about one investment manager or one money-market fund.
It represents another step in the gradual integration of blockchain technology with regulated financial markets.
Franklin Templeton has spent years developing BENJI.
The SEC has been evaluating how existing regulations apply to digital assets.
Financial institutions are exploring tokenized securities.
And investors are becoming increasingly familiar with blockchain-based representations of traditional assets.
These developments are beginning to converge.
Conclusion
The SEC's regulatory relief involving Franklin Templeton's blockchain-based fund marks an important moment in the evolution of tokenized finance.
The action does not mean that the Investment Company Act of 1940 has been abandoned, nor does it eliminate the safeguards surrounding investment-fund custody.
Instead, it demonstrates how regulators can adapt existing requirements to accommodate blockchain-based infrastructure.
BENJI provides an important case study.
Franklin Templeton launched the fund in 2021 as the first U.S.-registered mutual fund to use a public blockchain as its official system of record, and the product has since become a prominent example of tokenization in regulated asset management.
The latest regulatory developments could make it easier for similar structures to emerge.
That could eventually lead to faster settlement, more flexible transaction processing, more frequent pricing and greater interoperability between traditional financial products and blockchain networks.
For the broader crypto and digital-asset industry, the significance is substantial.
The next major phase of blockchain adoption may not come from speculative cryptocurrencies alone.
It may come from traditional financial products quietly moving onto blockchain rails.
If that trend continues, the most important blockchain developments of the coming years could happen inside mutual funds, Treasury products, payment systems and institutional investment platforms rather than on cryptocurrency exchanges.
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Writer @Victoria
Victoria Hale is a writer focused on blockchain and digital technology. She is known for her ability to simplify complex technological developments into content that is clear, easy to understand, and engaging to read.
Through her writing, Victoria covers the latest trends, innovations, and developments in the digital ecosystem, as well as their impact on the future of finance and technology. She also explores how new technologies are changing the way people interact in the digital world.
Her writing style is simple, informative, and focused on providing readers with a clear understanding of the rapidly evolving world of technology.
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