By Satnam Gambhir
In a No Action Letter dated August 12, 2026, the staff of the SEC’s Division of Investment Management said it would not recommend enforcement action against certain Franklin Templeton funds in connection with their investments in the Franklin OnChain U.S. Government Money Fund, a government money market fund whose official record of share ownership is maintained by its transfer agent on a system integrated with blockchain.
The investing funds sought the flexibility under Section 17(f) of the Investment Company Act for cash management purposes, including cash balances and securities lending collateral, citing operational features their current cash vehicle does not offer — among them hourly net asset value calculation and intraday trading.
While No-Action Letters carry no legal effect and represent no approvals, whether of process or technology, this one offers practical insight into how the SEC staff worked through requirements written when securities were certificates in a vault. Investor recordkeeping moved to book entry long ago; the rules’ text did not follow, and a distributed ledger strains it further. The letter also explores what the SEC staff expects from a transfer agent operating a blockchain-integrated recordkeeping platform, within the framework of the request.
The SEC staff did not treat the core custody question as new ground. Its response builds directly on a 1992 no-action letter involving another Franklin arrangement, in which a master fund’s transfer agent maintained the feeder’s shares in book-entry form rather than as certificates in a vault. The SEC staff accepted that recording the same entries on a blockchain does not change the analysis, because the transfer agent remains the party charged with maintaining the official record and retains unilateral control over it under the specific facts and conditions described in the request. The question is more than three decades old. The ledger is what’s new.
What the letter adds for a blockchain-integrated arrangement is specificity. The staff conditioned its position on twelve operational safeguards investing funds must maintain, many of which operate through the transfer agent’s systems, and the result is an unusually concrete account of what a transfer agent’s blockchain recordkeeping system is expected to do. Though the letter specifically concerns a self-custody structure (one in which a transfer agent serves as the custodian of affiliated funds), the conditions imposed by the letter nevertheless shed light on operational safeguards that recordkeeping systems may consider in the blockchain age.
From our perspective providing investor recordkeeping software and services, two things stood out. We offer them as conversation topics, not conclusions.
- Read together, the arrangement describes a control environment that happens to use a blockchain. The conditions are applied to the fund—but the transfer agent’s system determines whether they can be satisfied. Several of the twelve safeguards operate by requiring each fund to obligate its transfer agent—to keep the fund’s holdings in a segregated account and a separate blockchain wallet, to send copies of all confirmations, to maintain the controls that allow the record to be corrected.Others sit with the fund directly: a system designed to prevent unauthorized officers’ instructions, limits on who may transmit instructions, daily reconciliation of confirmations against transaction authorizations, board approval and annual review. The arrangement describes a control environment that happens to use a blockchain. The fund carries the obligation. The transfer agent’s system determines whether it can be met, and the transfer agent remains responsible for ensuring that environment is in line with its own recordkeeping, cybersecurity, and vendor-oversight obligations.
- The second is a condition that is easy to pass over. Among the substitutes for physical custody is what happens when the transfer agent stops being the transfer agent. On any assignment or transition, the letter requires delivery of the shares and the official books and records to a successor — and, explicitly, transfer of the administrative controls needed to maintain and update the official record, including control over any smart contracts and any other functionality carrying the unilateral ability to correct entries.On a traditional platform, conversion is difficult but familiar. On a blockchain-integrated platform, where the transfer agent controls the administrative functions needed to maintain and correct the official register, that transition obligation has an architectural dimension. It has to be designed in early, because adding it later means touching everything. For a transfer agent, this means preparing from the start for how keys, smart contracts, data, and access will be managed and handed over, ensuring any future transition meets SEC expectations without affecting ownership records or depending solely on the public blockchain. It’s a question a board approving one of these arrangements should be equipped to ask. Any transfer agent evaluating a platform should ask sooner than that.
Both are questions of system design, an ever-evolving field that we spend a lot of time on. If you’re working through these questions, we’d be glad to compare notes—including on Envision DTX, our digital assets and fund tokenization platform.
It is important to note that the SEC has not approved any specific transfer agent, platform, or technology, including Envision DTX. Transfer agents remain responsible for complying with all regulatory requirements, regardless of the technology they use.