If you run the policy utility IXCMIAPU to create/replace an administrative 
policy in the CFRM CDS, then for any structure definition that specifies 
ENCRYPT(YES), the system will create an encryption key for that structure 
provided the CFRM CDS does not already have a key for the structure.  That is, 
a key is generated if neither the current active policy nor any of the existing 
administrative policies specify ENCRYPT(YES) for the structure.  Any such key 
is wrapped by the master AES key and stored in the CFRM CDS.  Depending on 
CFLEVEL, the wrapped key may also be stored in the CF as well.  However, one 
should think of the CFRM CDS as being "the" key repository for encrypted CF 
structures.

Yes, all the encryption/decryption is performed by z/OS.

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