SEC’s Hester Peirce backs zero-knowledge proofs for KYC

SEC commissioner Hester Peirce urged adoption of zero-knowledge proofs in recent remarks, proposing the cryptographic method to reform know-your-customer checks by allowing customers to demonstrate attributes without handing over full identity records.

Peirce argued the approach would reduce data sharing and lower the risks tied to centralized identity stores while preserving the information firms need to meet regulatory requirements.

Zero-knowledge proofs allow one party to prove a fact to another without revealing the underlying data. A user could obtain verified attestations from a trusted issuer, such as a government ID verifier or bank, then generate a proof that those attestations meet a service’s requirements. The service would validate the proof without seeing the original document or personal identifiers.

Peirce outlined examples including proving an age threshold, residency in a permitted jurisdiction or that a person is not on a sanctions list without supplying full identity files. She also noted a broker might accept a cryptographic proof that a client is an accredited investor without receiving income statements, and an exchange could confirm a customer is not sanctioned without retaining identity files.

Supporters argue the method could streamline onboarding, speed account openings and reduce duplicate checks across firms. Limiting the amount of identity data held by companies could reduce exposure from breaches and narrow the focus of audits to processes rather than raw identity files.

Peirce identified technical and regulatory hurdles, including the need for standardized attestations, reliable issuers, mechanisms to revoke or update claims and interoperability across providers. She said proofs must meet anti-money-laundering and counter-terrorist financing obligations, which require transaction monitoring and records that regulators can inspect, and that coordination will be required among securities regulators, banking supervisors and financial intelligence units.

Critics warned stronger privacy protections could complicate law enforcement access and pointed out that cryptographic proofs are only as trustworthy as the entities issuing attestations. Peirce called for pilot programs and careful design work to test how proofs interact with recordkeeping, audits and legal requirements rather than immediate replacement of current identity checks.

Industry groups in finance and blockchain development are testing digital identity wallets and verifiable credentials that use zero-knowledge techniques. Any formal regulatory acceptance would likely require technical standards, legal clarity on what constitutes a valid attestation and procedures for oversight.

Peirce has previously promoted policy work intended to balance investor protection and innovation and framed zero-knowledge proofs as a technology to explore through pilots and regulatory coordination.