SEC Proposes Less KYC Data and More Cryptographic Privacy

Hester Peirce, outgoing commissioner of the SEC, proposed a review of how financial entities comply with KYC and AML controls. The proposal does not eliminate KYC or AML but suggests verifying only the necessary attributes of customers without collecting massive personal data. During the SIFMA Digital Assets Conference, Peirce questioned the effectiveness of accumulating information to detect illicit activities, comparing this approach to searching for 'needles in haystacks of data.' Peirce does not advocate for the elimination of KYC or AML but rather for changing the model that leads to the collection of similar information across different institutions. She proposed the use of cryptographic tools, such as zero-knowledge proofs, which allow for the verification of attributes without revealing complete personal information. The proposal includes attribute-based credentials and third-party verifications, which could reduce document storage. Peirce also highlighted the risks of concentrating sensitive information, suggesting that reducing the amount of stored data could limit exposure in the event of incidents. The discussion is relevant in the context of new rules for stablecoin issuers, although Peirce did not present a specific technical protocol. Her proposal aims to open the regulatory framework to methods that verify what is necessary with less circulation of personal information.

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