SEC Commissioner Hester Peirce has called on U.S. regulators to use zero-knowledge proofs and digital credentials to reduce personal-data collection in KYC and AML compliance following her September 23 speech in New York.
Summary
- Peirce urged regulators to use zero-knowledge proofs for compliance checks while collecting less personal information.
- Attribute-based credentials could verify age, citizenship, investor status, or sanctions screening without exposing underlying data.
- Existing KYC and AML requirements remain unchanged because Peirce’s remarks represent her policy views only.
- The SEC’s five-year Innovation Exemption permits tokenized stocks to trade through permissioned automated market makers.
- SIFMA warned the exemption could create investor confusion, liquidity fragmentation, and parallel markets for securities.
The SEC’s published transcript states that Peirce delivered the remarks at SIFMA’s 2026 Digital Assets Conference during her penultimate week as a commissioner. She made clear that the views were her own and did not necessarily represent the SEC or her fellow commissioners.
Peirce argued that financial institutions collect large amounts of identity and transaction data because of customer identification and anti-money-laundering requirements. She described the resulting records as “ever bigger data haystacks” and said repeated collection can turn financial infrastructure into a “panopticon.” Her comments were a policy proposal, not a change to current KYC or AML rules.
Peirce wants zero-knowledge proofs used for KYC checks
In place of some existing data collection, Peirce proposed greater use of attribute-based credentials. Such credentials could establish facts including age, citizenship, accredited-investor status or whether someone has passed sanctions screening without giving each institution the underlying records.
A zero-knowledge proof could then confirm that a person satisfies a required condition without exposing information such as a name, address or income. Peirce argued that regulators should move from prescriptive collection requirements toward attribute-based verification where technology can support the required compliance check.
Her proposal would not eliminate every identity check or transaction-monitoring duty. Peirce questioned whether every institution needs to collect the same information and suggested making it easier for regulated firms to rely on trusted third-party identity verification. Existing broker-dealer rules already permit reliance on another financial institution in limited circumstances when regulatory and contractual conditions are met.
Current rules require covered broker-dealers to maintain written Customer Identification Programs. The SEC’s AML guidance lists requirements covering customer identifying information, identity verification, recordkeeping and screening against designated government lists. No SEC rule issued with Peirce’s September 23 speech removed those obligations.
SEC staff had already examined privacy-based identity tools
Peirce’s remarks followed direct work inside the SEC Crypto Task Force on privacy-preserving identity technology. On July 17, task force staff met representatives of Aztec Laboratorium Limited to discuss regulatory issues involving crypto assets and ZKPassport, according to an SEC meeting memorandum.
Materials submitted for that meeting described a system in which government-issued identity documents are checked locally on a user’s device. The system then produces a cryptographic proof for a requested fact, such as age, jurisdiction or sanctions status, without sending the underlying identity information to the business. The claims about ZKPassport’s operation came from Aztec’s presentation to SEC staff and were not an SEC endorsement of the product.
The discussion covered whether cryptographic proofs could satisfy certain customer identification, sanctions-screening and recordkeeping requirements. Aztec’s materials acknowledged that existing rules do not necessarily contemplate replacing stored information with a cryptographic proof, leaving regulatory questions unresolved.
A 2025 President’s Working Group report had previously discussed zero-knowledge proofs as one method for confirming that identity checks or screening occurred without revealing the underlying personal information. The report called for regulators to examine how digital identity tools could operate within existing AML and customer-identification requirements.
Innovation Exemption gives tokenized stocks a five-year route
Before turning to privacy and KYC, Peirce addressed the SEC’s Innovation Exemption issued September 17. She described the order as two time- and size-limited exemptions intended to let qualifying tokenized securities trade through automated market makers while the SEC considers permanent rules.
The SEC order grants conditional relief to Tokenized Securities Venues from the Exchange Act definition of an exchange. Separate relief applies to certain liquidity providers that could otherwise meet the definition of a dealer. The exemptions run from September 17, 2026 through September 17, 2031.
As crypto.news reported in its five-year tokenized stock exemption coverage, eligible venues can use permissioned AMM liquidity pools for tokenized National Market System stocks. Eligible stock tokens must provide rights matching the corresponding traditional shares, while synthetic products that merely track a stock’s price fall outside the exemption.
The framework places limits on the experiment. Tier 1 tokenized stocks are capped at 75 symbols and 0.25% of the underlying stock’s prior-month average daily volume. Tier 2 securities are capped at 250 symbols and 2.5%. Venues must make specified transaction information public and update qualifying transaction data within ten minutes.
Peirce said she preferred tokenized exposure to U.S. equities to develop domestically instead of leaving overseas platforms as the primary venue for such products. Chairman Paul Atkins separately described the exemption as a “bridge toward durable rulemaking.”
In related coverage, crypto.news reported that tokenized stocks must preserve traditional shareholder rights under the SEC framework. The exemption gives issuers an opportunity to object before an unaffiliated third party makes a tokenized version of their stock available through a qualifying venue.
SIFMA raises concerns as SEC seeks public comments
SIFMA welcomed regulatory work on tokenized securities but raised concerns about parts of the temporary framework. President and CEO Kenneth Bentsen Jr. said the group was concerned that multiple tokenized versions of listed securities trading in parallel markets could create investor confusion and price or liquidity fragmentation.
Peirce acknowledged SIFMA’s initial response during her September 23 remarks and said the exemption represented only one stage of the SEC’s work on tokenized securities. She said the agency’s longer-term task was to establish rules for intermediaries and venues handling forms of tokenized securities that existing market regulations did not originally contemplate.
The KYC proposal remains separate from that order. Peirce did not announce an SEC rulemaking that would allow zero-knowledge proofs to replace existing customer-identification records, nor did her speech create a new compliance exemption. The current broker-dealer AML framework continues to require firms to follow applicable customer-identification, monitoring and reporting rules.
For tokenized securities, meanwhile, the SEC has kept File No. 4-927 open for public comments on the Innovation Exemption. The agency is specifically requesting feedback on its five-year duration, trading limits, market effects, compliance conditions and whether any parts of the temporary framework should eventually become permanent.
