SEC's Hester Peirce Backs Zero-Knowledge Proofs for Crypto KYC and Tokenized Stocks
by Maisie Morrison · BlockonomiTLDR
Table of Contents
- SEC Commissioner Hester Peirce urged regulators to use zero-knowledge proofs so firms can run KYC checks while collecting less personal data.
- Digital credentials could confirm age, citizenship, investor status or sanctions screening without exposing the records behind them.
- Her remarks are personal policy views, and current KYC and AML rules remain unchanged.
- The SEC’s Innovation Exemption lets tokenized stocks trade through permissioned automated market makers until 2031.
- SIFMA warned the exemption could confuse investors and split prices and liquidity across parallel markets.
SEC Commissioner Hester Peirce has called on U.S. regulators to use zero-knowledge proofs and digital credentials in KYC and AML compliance. She made the case in a September 23 speech at SIFMA’s 2026 Digital Assets Conference in New York.
Peirce gave the remarks during her second-to-last week as a commissioner. She said the views were her own and did not necessarily represent the SEC or her fellow commissioners.
Peirce said financial firms collect large amounts of identity and transaction data to meet customer identification and anti-money-laundering rules. She described the records as “ever bigger data haystacks” and warned that repeated collection can turn financial systems into a “panopticon.”
How Zero-Knowledge Proofs Would Work for KYC
Peirce proposed wider use of attribute-based credentials. These could confirm facts such as age, citizenship, accredited-investor status or sanctions screening without handing each firm the underlying records.
A zero-knowledge proof could then show that a person meets a requirement without revealing a name, address or income. Peirce said regulators should move toward this kind of verification where technology can support it.
She also questioned whether every institution needs to collect the same data. She suggested making it easier for firms to rely on trusted third parties for identity checks.
Her remarks do not change current rules. Broker-dealers must still keep written Customer Identification Programs, verify identities, keep records and screen customers against government lists.
SEC staff had already looked at this technology. On July 17, the SEC Crypto Task Force met with Aztec Laboratorium Limited to discuss crypto assets and its ZKPassport system.
According to Aztec’s materials, ZKPassport checks government ID documents on a user’s device and creates a proof of a specific fact. Aztec acknowledged that existing rules do not clearly allow a cryptographic proof to replace stored records.
A 2025 President’s Working Group report also discussed zero-knowledge proofs. It called on regulators to study how digital identity tools could fit within current AML rules.
Tokenized Stock Exemption Sets Five-Year Test
Peirce also addressed the SEC’s Innovation Exemption, issued September 17. The order lets qualifying tokenized stocks trade through permissioned automated market makers from September 17, 2026 through September 17, 2031.
Eligible tokens must carry the same rights as the traditional shares. Synthetic products that only track a stock’s price are not covered.
The framework sets limits. Tier 1 stocks are capped at 75 symbols and 0.25% of the underlying stock’s prior-month average daily volume, while Tier 2 is capped at 250 symbols and 2.5%.
Peirce said she would prefer tokenized exposure to U.S. stocks to develop at home rather than on overseas platforms. Chairman Paul Atkins called the exemption a “bridge toward durable rulemaking.”
SIFMA President and CEO Kenneth Bentsen Jr. raised concerns about the plan. He said multiple tokenized versions of listed stocks trading in parallel markets could cause investor confusion and split prices and liquidity.
Peirce acknowledged SIFMA’s response and said the exemption is only one stage of the SEC’s work. The agency has kept File No. 4-927 open for public comments on the exemption’s length, trading limits, market effects and whether parts should become permanent.