SEC Commissioner Hester Peirce called for regulators to rethink how know-your-customer and anti-money-laundering rules are applied, arguing that zero-knowledge technology could verify users without exposing their personal information.
Peirce made the remarks at SIFMA’s Digital Assets Conference on September 23. Zero-knowledge technology can let someone prove they meet a requirement without revealing details such as their name, income or address.
Peirce Questions the “Data Haystack”
Peirce said financial firms already collect large amounts of customer and transaction data. She questioned whether storing all that information in centralized databases necessarily makes it easier to detect financial crime.
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She also suggested using independent identity-verification providers. Customers could verify their identity through a third party instead of repeatedly submitting the same sensitive information to every financial institution.
That approach could reduce the amount of personal data stored across the financial system while still allowing firms to satisfy regulatory requirements.
SEC’s Tokenization Push
Peirce also discussed the SEC’s Innovation Exemption for tokenized stocks. Issued on September 17, the five-year exemption allows trading venues to use permissioned automated market makers and liquidity pools.
Peirce described the measure as a bridge toward permanent rules for tokenized assets. She also highlighted blockchains and attribute-based credentials, which could let users prove facts such as age, citizenship, accreditation or sanctions status without revealing the underlying data.
The approach could give firms and regulators the information needed for compliance while limiting unnecessary disclosure of personal information.
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