SEC’s Peirce Backs Zero-Knowledge Proofs to Transform KYC and Protect User Privacy
SEC Commissioner Hester Peirce suggested that regulators explore zero-knowledge proofs and digital credentials to reduce the massive accumulation of sensitive KYC and AML data collected by financial institutions.
United States regulators should investigate zero-knowledge proofs and digital credentials as potential tools to reduce the volume of Know Your Customer (KYC) and Anti-Money Laundering (AML) data gathered, according to Securities and Exchange Commission (SEC) Commissioner Hester Peirce.
Speaking on September 23 at the SIFMA 2026 Digital Assets Conference in New York, Peirce noted that banks routinely assemble massive quantities of transaction and identity details to adhere to current legislation.
She pointed out that this widespread collection across various institutions results in large repositories holding sensitive information. Please note that these views represent her personal perspective and do not reflect the official stance of the SEC.
Under a proposed attribute-based credential system, an individual could demonstrate specific criteria—such as meeting a minimum age requirement, holding citizenship in a designated country, qualifying as an accredited investor, or successfully clearing a sanctions screening.
Zero-knowledge proofs could then confirm that these conditions are met without exposing private details like home addresses, full names, or income levels.
Peirce did not advocate for eliminating transaction monitoring, AML rules, or KYC protocols. Instead, she questioned the necessity for every regulated company to independently gather identical underlying data if a trusted third-party verification service could handle that task. Existing Customer Identification Program mandates for broker-dealers remain fully active.
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Prior to Peirce’s address, the SEC’s Crypto Task Force had already begun investigating privacy-focused identity solutions. In July, the task force met with representatives from Aztec Laboratorium Limited to converse about ZKPassport and cryptographic identity proofs.
Aztec states that its technology processes government-issued identity documents directly on a user’s device, generating verification claims for attributes like jurisdiction, age, or sanctions compliance without transmitting raw identity data to businesses. The SEC did not formally endorse these assertions. A 2025 federal report referenced zero-knowledge proofs among potential methods for authenticating identity checks without exposing personal data.
Additionally, Peirce addressed the SEC’s Innovation Exemption launched on September 17 concerning tokenized National Market System (NMS) stocks. This provision supplies interim conditional relief to qualifying liquidity providers and venues, permitting permissioned automated market maker (AMM) pools to facilitate tokenized NMS stock trading while the Commission evaluates permanent regulations.
These exemptions remain valid through September 17, 2031, though the regulatory framework places restrictions on eligible securities, trading volume ceilings, and disclosure mandates. Tokenized stocks must grant rights identical to the underlying equities, explicitly excluding synthetic products that merely track a stock’s price.
Because Peirce’s proposal for zero-knowledge proofs operates independently from the Innovation Exemption and introduces no alterations to customer identification rules, the SEC has not yet authorized such cryptographic proofs as a substitute for traditional KYC documentation.
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Her commentary encourages regulators to evaluate whether privacy-centric technologies can successfully achieve compliance goals while minimizing the unneeded accumulation of user data.
Frequently Asked Questions
What did SEC Commissioner Hester Peirce propose regarding zero-knowledge proofs?
Hester Peirce suggested that U.S. regulators look into zero-knowledge proofs and digital credentials to see if they can reduce the extensive collection of KYC and AML data across financial institutions.
Did Peirce propose eliminating KYC and AML requirements entirely?
No. Peirce did not call for getting rid of transaction monitoring, KYC, or AML obligations. Instead, she questioned why every regulated entity needs to gather the same underlying information if a trusted third-party verification service could perform the work.
What is the SEC’s Innovation Exemption for tokenized NMS stocks?
Issued on September 17, the Innovation Exemption offers interim conditional relief to eligible venues and liquidity providers, allowing permissioned AMM pools to support tokenized NMS stock trading until the Commission establishes permanent rules. It runs until September 17, 2031, with strict limits on trading volumes, disclosures, and eligible securities.
Has the SEC officially approved zero-knowledge proofs as a replacement for KYC?
No. Peirce’s zero-knowledge proposal is distinct from the Innovation Exemption, and customer-identification requirements remain in effect because the SEC has not yet approved cryptographic proofs as an alternative to standard KYC documentation.
Web3 PR Specialist | KOL | Blockchain Advocate | Digital Strategy Expert based in Moscow, Russia. Focused on Web3 communications, blockchain, digital strategy, and community growth.
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