On August 12, 2026, the staff of the SEC’s Division of Investment Management issued a no-action letter to a fund complex of registered open-end and closed-end funds (the Funds), permitting the Funds to custody their investments in an affiliated blockchain-recorded government money market fund (the OnChain Fund) with an affiliated registered transfer agent (the TA), without complying with the custody requirements of Rule 17f-2(b), (e) and (f) under the Investment Company Act of 1940. The relief builds on a similar 1992 no-action letter provided to the same fund complex that addressed the same requirements in the context of an affiliated master-feeder arrangement, permitting the funds’ affiliated transfer agent to maintain the feeder funds’ investments in the master fund in book-entry form.
The OnChain Fund operates as a government money market fund pursuant to Rule 2a-7 under the Investment Company Act in the same manner as other such funds, except with respect to how the TA records share ownership. The TA maintains the official record of share ownership for the OnChain Fund using a proprietary recordkeeping system that integrates (i) an internal book-entry system and (ii) one or more public blockchain networks (the Integrated System). As stated in the incoming letter requesting the relief, all fund and shareholder records in the Integrated System are under the full control of the TA, and the TA maintains controls to correct errors or unauthorized transactions on any blockchain used by the system. To enable the Funds to invest in the OnChain Fund under the proposed arrangement, the affiliated transfer agent would create a blockchain wallet for each Fund to hold the Fund’s investments in the OnChain Fund and would maintain and secure the private key associated with each Fund’s blockchain wallet. Because the TA is an affiliated person of the Funds, the Funds’ proposed custody of their investments in the OnChain Fund with the TA is a self-custody arrangement subject to Rule 17f-2. In the incoming letter, the Funds maintain that the proposed self-custody arrangement presents the same functional problem presented in the 1992 letter, notwithstanding the use of blockchain technology—namely that the ownership of the shares is evidenced and administered through an affiliated transfer agent’s records, rather than through physical possession of certificates as contemplated in Rule 17f-2.
The no-action relief is subject to twelve conditions designed to address the policy concerns underlying the requirements of Rule 17f-2(b), (e) and (f). As indicated in the incoming letter, the TA’s controlled transfer-agent records, segregated accounts, successor-transition obligations and board oversight are intended to address the underlying concerns of the physical vault custody requirement in Rule 17f-2(b); controls over authorized instructions, passwords or other authentication factors, confirmations sent to persons other than those transmitting instructions, and daily reconciliation against transaction authorizations are intended to satisfy the underlying concerns of the deposit and withdrawal notation requirement in Rule 17f-2(e); and the required independent public accountant verifications comparing and reconciling the TA’s account records with the book records of the Funds and the OnChain Fund are intended to address the underlying concerns of the similar requirement in Rule 17f-2(f).
The August 12, 2026 no-action letter is available here.
