SEC Commissioner Hester Peirce has recommended that U.S. regulators incorporate zero-knowledge proofs and digital credentials to improve know-your-customer (KYC) and anti-money laundering (AML) procedures in the financial sector. Delivering a speech at SIFMA’s 2026 Digital Assets Conference in New York, Peirce emphasized that her comments reflect her personal views and not those of the U.S. Securities and Exchange Commission (SEC) or her fellow commissioners.
Calls for privacy-focused compliance methods
Peirce, who has served as a prominent advocate for innovative approaches in financial regulation, cautioned against the growing accumulation of sensitive customer data by brokers and financial firms. She described this trend as building “ever bigger data haystacks” and warned about the risk of turning financial systems into a “panopticon,” where repeated data collection could compromise individual privacy.
In her address, Peirce suggested using attribute-based credentials, allowing entities to verify certain information—such as age, citizenship, accredited investor status, or sanctions checks—without accessing the underlying records themselves. By leveraging zero-knowledge proofs, a cryptographic method, individuals would be able to demonstrate compliance with regulatory requirements, such as proving age or citizenship, while minimizing disclosure of personal data, including names, addresses, or income.
Peirce further questioned whether every institution needs to duplicate data collection. She proposed that it should be easier for firms to use trusted third-party verifications, rather than each collecting the same personal data repeatedly.
Peirce argued that adopting digital credentials and zero-knowledge proofs could allow firms to meet regulatory compliance while limiting the exposure of sensitive personal information, leading to a more privacy-respecting system.
She clarified that existing requirements for broker-dealers remain in effect, including mandatory customer identification programs, identity verification, recordkeeping, and screening against government lists.
Recent advances and regulatory interest
Peirce noted that SEC staff have already taken steps to explore zero-knowledge proof technology. On July 17, the SEC Crypto Task Force met with Aztec Laboratorium Limited, a cryptography-focused firm known for its ZKPassport system, to review how cryptographic proofs could be used for identity verification.
According to Aztec, the ZKPassport checks official identity documents directly on a user’s device and generates a cryptographic proof of a specific compliance attribute. The company acknowledged that existing regulations do not clearly allow these proofs to replace stored identity records.
A report from the 2025 President’s Working Group on Financial Markets examined similar themes, urging financial regulators to further study how such digital identity solutions might align with current AML rules.
Mini dictionary: Zero-knowledge proof — a cryptographic protocol that allows one party to prove to another that a statement is true without revealing any underlying information beyond the claim itself. This technology is increasingly explored for privacy-preserving authentication and compliance in financial services.
Tokenized stocks under SEC innovation exemption
Peirce also addressed the SEC’s recent Innovation Exemption order, issued on September 17, which permits the trading of tokenized stocks through permissioned automated market makers from September 17, 2026, to September 17, 2031. This exemption establishes a five-year pilot for eligible tokenized securities in specified U.S. markets.
Tokenized stocks included in this framework must provide the same rights as their traditional counterparts. The exemption does not cover synthetic products that merely track stock prices without conferring actual ownership rights.
The SEC set clear limitations for the pilot program. Tier 1, covering the largest stocks, allows for up to 75 tokenized symbols, capped at 0.25% of the stock’s prior-month average daily volume. Tier 2 includes up to 250 symbols, with a cap at 2.5% of daily volume.
| Stock Tier | Maximum Symbols | Volume Cap |
|---|---|---|
| Tier 1 | 75 | 0.25% of prior-month average daily volume |
| Tier 2 | 250 | 2.5% of prior-month average daily volume |
Peirce expressed her preference for U.S. markets developing tokenized exposure to domestic stocks, rather than seeing such activity migrate to offshore exchanges. SEC Chairman Paul Atkins described the exemption as a “bridge toward durable rulemaking.”
SIFMA President and CEO Kenneth Bentsen Jr. stated that multiple tokenized versions of listed stocks could lead to investor confusion and fragment liquidity across parallel markets, cautioning regulators to consider these effects.
Peirce acknowledged SIFMA’s concerns and emphasized that the Innovation Exemption is intended as a temporary measure. The SEC is accepting public feedback on key details, including the exemption’s duration, trading limits, and potential for permanent adoption (File No. 4-927).
