SEC’s Hester Peirce Calls for Zero-Knowledge Proofs in KYC

Can zero-knowledge proofs replace KYC data collection? SEC’s Hester Peirce says yes; here’s her case for privacy-first compliance.

SEC Commissioner Hester Peirce has pushed for zero-knowledge proofs as a way to bring KYC and anti-money laundering practices into the modern era. Her point is that regulators can confirm compliance without having to collect sensitive personal information over and over again.

Peirce made the comments during the 2026 SIFMA Digital Assets Conference. She said existing KYC and AML frameworks create increasingly large pools of personal and financial data.

The commissioner compared these pools to “data haystacks” designed to help authorities find illicit activity. However, she argued that larger data 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 whole range of customer information, including names, birthdays, addresses, and ID numbers. They also have to look into details about a customer’s financial relationships. 

Institutions also monitor customer activity and may submit Currency Transaction Reports and Suspicious Activity Reports. These reports can contain detailed personal and transaction information.

Peirce questioned whether gathering all this data is even worth it; do the benefits actually outweigh the costs? She also noted the danger in having so much sensitive information copied around, stored, and left vulnerable to exposure.

Zero-knowledge proofs point to a different path. This cryptographic technology can confirm a specific condition has been met without ever exposing what’s underneath it.

Someone could prove they meet an eligibility requirement without ever sharing their name, income, or address. The other party gets confirmation of the fact that matters, nothing more.

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

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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. Users could prove those attributes without repeatedly disclosing the information behind them.

The approach could also address duplicated identity checks across financial institutions. Peirce noted that regulated entities generally need to collect and verify customer information independently, with limited exceptions.

That process can result in the same sensitive information being copied across multiple institutions. Peirce 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 provide sensitive information. For institutions, it could reduce duplicated compliance work and associated costs.

Zero-knowledge proofs in KYC 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. Blockchain forensics can also allow authorities to analyze public transaction records.

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

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

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

The key mechanism is therefore straightforward: prove the required fact without unnecessarily revealing the personal data behind it. Peirce’s proposal would shift KYC toward verification based on specific attributes rather than continuous accumulation of sensitive information.