SEC Exempts Franklin Templeton From Physical Custody Rules For Tokenized Funds

Woofun AI reports that the SEC granted Franklin Templeton an exemption from physical custody regulations for its blockchain-based money-market operations, allowing the firm to utilize Franklin Templeton Investor Services (FTIS) as custodian for the Franklin OnChain U.S. Government Money Fund.

The regulatory relief was formalized via a no-action letter issued on Wednesday, responding to a formal request submitted earlier that day. The SEC stated it will not pursue enforcement action if fund managers invest cash in the interest-bearing tokenized fund, which holds US government securities and targets a stable $1 share price. Crucially, FTIS is permitted to hold private keys without adhering to traditional physical-custody rules, provided 12 specific conditions are met. These mandates require Franklin Templeton to implement systems preventing unauthorized instructions, while FTIS must maintain administrative controls capable of correcting, freezing, migrating, or restoring records.

Woofun AI data shows Franklin Templeton currently oversees $2.5 billion in onchain assets through its tokenized funds, ranking it as the fifth-largest tokenized asset manager according to RWA.xyz. This regulatory advance follows the firm's strategic expansion in June, when it launched a dedicated crypto division and acquired crypto asset manager 250 Digital to accelerate its push into tokenization.

The approval establishes a precedent for institutional custody of digital assets under defined guardrails. This regulatory nod signals a potential shift toward integrating traditional financial infrastructure with blockchain-based settlement mechanisms.