SEC Commissioner Hester Peirce Calls for Zero-Knowledge Proofs to Modernize KYC and AML

SEC Commissioner Hester Peirce discusses zero-knowledge proofs for privacy-focused KYC and AML

SEC Commissioner Hester Peirce has called for greater use of zero-knowledge proofs and attribute-based credentials to verify financial compliance without requiring institutions to repeatedly collect and store sensitive personal information.

According to Wu Blockchain, Peirce also discussed the SEC's Innovation Exemption for tokenized securities, describing the temporary framework as a pathway for onchain trading through automated market makers (AMMs) while regulators work toward longer-term rules.

Peirce made the remarks in a speech at the SIFMA Digital Assets Conference on Sept. 23, 2026. She said her views were her own and not necessarily those of the SEC or her fellow commissioners.

Peirce Criticizes Data-Heavy KYC and AML Systems

Peirce argued that conventional know-your-customer (KYC) and anti-money-laundering (AML) processes can create increasingly large collections of personal information without necessarily producing proportional improvements in financial surveillance.

She described these growing collections as “data haystacks” and compared a financial system that continually accumulates sensitive information to a “panopticon.” Her proposed alternative is to use privacy-preserving technologies that allow institutions to establish whether a customer meets specific compliance requirements without requiring the underlying personal information to be repeatedly disclosed.

Zero-knowledge proofs are cryptographic techniques that can allow one party to demonstrate that a statement is true without revealing the underlying information used to establish it. Attribute-based credentials similarly allow specific characteristics or qualifications to be verified without necessarily exposing an individual's complete identity record.

The approach outlined by Peirce would shift compliance toward verifying required attributes rather than maintaining extensive databases containing users' sensitive information.

SEC Innovation Exemption Opens Path for Tokenized Stocks

Peirce also addressed the SEC's recently approved Innovation Exemption, which provides temporary, conditional relief for certain tokenized U.S. stocks to trade through Tokenized Securities Venues using permissioned AMM liquidity pools.

The SEC issued the exemption on Sept. 17, allowing qualifying venues to trade tokenized National Market System stocks under specified conditions. The agency said the framework is intended to provide an opportunity to observe how tokenized securities operate onchain while gathering information that can inform longer-term rules.

Peirce characterized the exemption as a bridge toward durable rulemaking. The framework is limited in scope and includes conditions covering participant access, trading volumes, investor rights, transparency and technology safeguards.

Privacy and Tokenization Become Part of the Regulatory Debate

The two issues are connected by a broader question facing regulators as financial markets move further onto digital infrastructure: how existing compliance requirements can be applied without unnecessarily expanding the amount of personal information collected and retained.

Peirce's comments place privacy-preserving verification alongside tokenized securities and onchain market infrastructure as areas where regulatory frameworks may need to accommodate new technology.

The Innovation Exemption is temporary, with the SEC requesting public comment as it evaluates potential modifications and longer-term regulatory approaches. The agency said the exemption will expire five years after publication, keeping future rulemaking as the next stage for the framework.

Writer: Victoria Hale
Technology & Blockchain Writer

Victoria Hale writes about blockchain technology, digital infrastructure, and the intersection of emerging technologies with finance. Her articles explore how new protocols and systems are shaping the evolving digital economy.

She prioritises clarity and accuracy when explaining technical developments to a general audience.