SEC Commissioner Hester Peirce has suggested the adoption of zero-knowledge proofs (ZKP) and attribute-based digital credentials to replace certain KYC/AML procedures.
During her speech at the SIFMA Digital Assets conference in New York, Peirce indicated that this approach could reduce the amount of personal data collected.
She criticized the current KYC/AML model for its redundancy, high costs, and limited effectiveness.
According to her, financial institutions are required by the government to collect clients' names, dates of birth, addresses, and identification numbers, while also continuously monitoring transactions and reporting large or suspicious activities.
“Today, society stands at a crossroads. One path leads to maintaining the status quo: more data collection, more surveillance of intermediaries, and more KYC requirements that turn our financial channels into a panopticon. The other path opens up the possibility of using new technologies to enhance our ability to catch criminals while collecting less personal information,” the commissioner stated.
Peirce explained that the ZKP approach allows for the verification of specific facts without disclosing underlying data, such as age, citizenship, accredited investor status, or absence from sanctions lists.
“There are tools available to limit the amount of information that individuals must provide and the number of organizations to which they must provide it. What is lacking is a regulatory framework that enables and encourages their implementation,” she noted.
Peirce emphasized that this reflects her personal view and may not align with the opinions of other SEC members.
She also remarked that the government will need to adjust oversight to accommodate decentralized networks. Public blockchains create a permanent and verifiable transaction ledger that law enforcement can analyze, she highlighted.
In her address, Peirce mentioned the Innovation Exemption introduced on September 17, describing it as a temporary and limited exception for trading tokenized securities through automated market makers — "two benefits in one solution."
It is worth noting that back in May, Peirce urged the crypto industry to temper its expectations regarding the "innovation exemption," stating that the regulator does not plan to allow the issuance of synthetic assets.
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