UPDATE: SEC opens crypto custody fallback proposal to public comment
CIE News ·
The SEC opened a 60-day public comment window on its crypto custody fallback proposal, which includes an estimated $433,833 annual compliance cost for advisers using self-custody exemptions.
On October 3, 2026, the SEC published its crypto custody fallback framework for public evaluation, initiating a 60-day public comment window in the Federal Register. As previously reported when the SEC proposed new crypto custody rules, the measure introduces an exemption allowing registered investment advisers and funds to hold covered client digital assets when an eligible qualified custodian is unavailable.
According to SEC economic analysis cited by CryptoSlate, using the self-custody fallback option carries an estimated baseline annual compliance cost of $433,833 per adviser. That modeled total includes an independent internal control report averaging $376,000 and recurring internal compliance expenses of $57,833, though it omits potentially significant technology and system expenses. CoinDesk reported that advisers relying on the fallback would need relevant expertise and would face quarterly reviews to verify whether a qualified custodian has become available.
Bitwise General Counsel Johanna Collins-Wood stated that while the framework resolves operational hurdles faced by asset managers since 2017, it leaves decentralized liquidity and protocol-based lending vaults in regulatory limbo. The SEC's proposal also clarifies record-keeping, auditing standards, and the use of state-chartered trusts as custodians.