The setting for encrypted JDBC passwords is within CMF_Channels.properties. This file is located in your install directory at the following location:
<install director>\igx-data\<JVM name>\IA\config\
The property below within the CMF_Channels.properties file controls database
# Allow JDBC URLS to contain encrypted passwords
Changes made to this location will take effect within 5 minutes; however, they will be lost during a deploy. To persist the change after a deploy, the setting will need to be change by using config overrides.