SEC Commissioner Hester Peirce has called for zero-knowledge proofs to be built into know-your-customer (KYC) and anti-money-laundering (AML) practices, arguing that regulators can confirm compliance without collecting sensitive personal information over and over again. She laid out the case during her remarks at the 2026 SIFMA Digital Assets Conference.

In her view, existing KYC and AML frameworks generate increasingly large pools of personal and financial data. Peirce compared these pools to “data haystacks” assembled to help authorities find illicit activity, but she argued that larger collections can also make information harder to manage and protect.

Why Peirce Wants Zero-Knowledge Proofs in KYC

Traditional KYC processes require financial institutions to gather and verify a wide range of customer information, including names, birth dates, addresses, and identification numbers. Firms must also examine details about a customer’s financial relationships, monitor account activity, and, where required, submit Currency Transaction Reports and Suspicious Activity Reports—filings that can contain detailed personal and transaction data.

Peirce questioned whether gathering all of this information is worth it, asking whether the benefits actually outweigh the costs. She also pointed to the danger of having so much sensitive information copied, stored, and left vulnerable to exposure. Data-minimization principles already anchor privacy regimes such as Europe’s GDPR, and her argument applies that same logic directly to KYC and AML.

Zero-knowledge proofs point to a different path. The cryptographic technology can confirm that a specific condition has been met without exposing what lies underneath it. A person could prove they satisfy an eligibility requirement without ever sharing their name, income, or address, giving the other party confirmation of the fact that matters—and nothing more. The technology is also already in live use across the crypto industry, where zero-knowledge systems power privacy-preserving payments and zk-rollup networks that help scale major blockchains.

Her conference remarks also touched on the SEC’s Innovation Exemption for tokenized securities, as recapped in the post below:

SEC Commissioner Peirce Calls for Zero-Knowledge Proofs to Replace Data-Heavy KYC/AML Practices

SEC Commissioner Hester Peirce said the agency’s Innovation Exemption provides a temporary pathway for tokenized securities to trade through AMMs, helping prevent overseas markets… pic.twitter.com/mWMTUCaOv4

— Wu Blockchain (@WuBlockchain) September 24, 2026

Attribute-Based Credentials Could Reduce Repeated Data Collection

Peirce also highlighted attribute-based credentials as another potential tool for modernizing KYC and AML processes. These credentials could verify specific attributes such as age, citizenship, accredited investor status, or whether someone appears on sanctions lists, allowing users to prove those attributes without repeatedly disclosing the information behind them.

The approach could also address duplicated identity checks across the financial system. Peirce noted that regulated entities generally need to collect and verify customer information independently, with limited exceptions—a process that can result in the same sensitive information being copied across multiple institutions. She suggested allowing registered entities to rely more easily on identity verification completed by another trusted, regulated entity.

For users, that could reduce the number of times they must provide sensitive information. For institutions, it could cut duplicated compliance work and the associated costs.

Zero-Knowledge Proofs Could Reshape Blockchain Compliance

Peirce argued that public blockchain networks provide another technological advantage: their ledgers are transparent, auditable, and difficult to alter. She said cryptography can help establish that a fact is true without exposing the underlying data, and she noted that blockchain forensics can allow authorities to analyze public transaction records.

Her broader proposal is to move away from prescriptive data collection wherever attribute-based verification is technologically feasible. Regulators could instead ask whether they need the specific information itself, or only the fact that the information proves.

The distinction matters for crypto users and businesses. Zero-knowledge proofs could allow compliance checks to proceed while limiting unnecessary exposure of personal information.

Peirce also questioned whether regulators should require intermediaries simply because they want information collected, noting that permissionless networks can operate through automated code without custodial intermediaries.

The key mechanism, in her framing, is straightforward: prove the required fact without unnecessarily revealing the personal data behind it. Her proposal would shift KYC toward verification based on specific attributes rather than the continuous accumulation of sensitive information.

None of this is policy yet. Her remarks amount to an argument for regulators, and attribute-based verification into practice would require formal rulemaking—making the agency’s follow-through on the idea the next development to watch.

Source: Live Bitcoin News