SEC Commissioner Hester Peirce has called on financial regulators to adopt privacy-preserving cryptography capable of verifying customer eligibility without requiring institutions to repeatedly collect names, addresses, and other sensitive personal information.

Speaking at the SIFMA Digital Assets Conference in New York on September 23, Peirce argued that zero-knowledge proofs — a cryptographic technique that lets one party demonstrate a statement is true without revealing the data behind it — could allow a counterparty to confirm that a customer meets requirements such as age, citizenship, accredited investor status, or sanctions screening without ever viewing the underlying personal data. She urged regulators to shift from prescriptive data collection toward attribute-based verification wherever the technology makes that possible.

In her prepared remarks, Peirce criticized existing KYC and anti-money-laundering frameworks for generating ever-larger stores of customer information across financial institutions. Customer Identification Programs can require names, birth dates, addresses, and identification numbers, while ongoing monitoring and regulatory reports add further transactional data. Duplicating those records across multiple institutions, she said, increases exposure to accidental or deliberate data breaches without necessarily improving enforcement outcomes.

Zero-Knowledge Systems Move Into Financial Compliance

Under Peirce's proposal, institutions would verify specific facts rather than automatically collecting the documents and personal information used to establish them. A customer could prove eligibility for a financial product, for instance, without disclosing an income figure, home address, or full identity record to every platform involved. For banks, broker-dealers, and exchanges whose compliance programs have long been built around gathering and archiving identity records, the remarks outline an alternative in which institutions hold fewer personal files while still completing regulatory checks.

The approach overlaps with the growing use of zero-knowledge cryptography in blockchain privacy systems. A Shielded Bitcoin proposal published this week uses encrypted notes, nullifiers, and zero-knowledge proofs to validate private Bitcoin-denominated transfers while concealing amounts and counterparties. Bitcoin would still order the underlying protocol data without any change to its consensus rules.

Peirce also connected privacy technology with permissionless networks, arguing that regulation should not require an intermediary merely to create a convenient point for collecting customer data. Public blockchains already create permanent transaction records that can be analyzed, while cryptographic systems can restrict unnecessary disclosure of information tied to individual users.

SEC Staff Clarifies Token Buybacks and Staking Receipts

Separate staff guidance issued by the SEC's Division of Corporation Finance on September 25 narrowed several securities-law questions around crypto assets.

According to the published FAQ, for a functional crypto system, announcing a buyback of a non-security crypto asset does not constitute a promise to undertake the “essential managerial efforts” weighed under the Howey investment-contract analysis, the framework derived from a 1946 Supreme Court decision that asks whether money is invested in a common enterprise with a reasonable expectation of profits stemming from the efforts of others. A different analysis can apply before a system becomes functional if an issuer promotes the buyback as generating yield or returns for token holders.

The same guidance classifies a staking receipt representing a digital commodity that is not subject to an investment contract as a digital tool, because it evidences ownership of the underlying asset. A staking receipt issued by a protocol-based liquid staking provider — a service in which token holders delegate staking to a protocol and receive receipts representing the staked assets — may instead qualify as a digital commodity when its value derives from the programmatic operation of a functional crypto system and from market supply and demand.

The guidance represents the views of the Division of Corporation Finance staff rather than a new Commission rule. It has no independent legal force and does not create additional obligations.

Peirce Prepares to Leave the SEC

The privacy remarks came less than a week after the SEC introduced its Innovation Exemption for qualifying onchain trading of tokenized U.S. stocks, another area Peirce addressed during her SIFMA appearance.

Peirce submitted her resignation on September 25, with her departure effective October 2. Regent University has already appointed her as an associate professor at its School of Law beginning in November, where her work will continue to include financial regulation and digital assets. Her departure leaves the questions she raised — privacy-preserving compliance, token classifications, and onchain market structure — to move forward at the agency without her.