At the SIFMA Digital Assets Conference on Wednesday, Hester Peirce, SEC Commissioner, called for an end to the existing KYC system and proposed using zero-knowledge proofs for verification. Peirce expressed the view that the current KYC/AML regime is built on the flawed assumption that collecting large amounts of information about people will help find criminals among law-abiding citizens. “We are creating ever-larger haystacks of data in the hope of finding a few needles in them,” – she noted. Peirce emphasized that “a bigger haystack, however, makes finding the needles harder.” According to her, technology now offers a better way to solve the problem. One such solution could be zero-knowledge proofs – a cryptographic method that allows confirming a fact without revealing the data itself. This would enable people to prove compliance without disclosing confidential information such as name, income, or address.
“The proof can inform the counterparty that the person meets the requirements without disclosing their name, income, or address,” – stated Peirce, calling for the creation of a regulatory framework that facilitates such attribute-based verification. Alternatively, according to Peirce, it will lead to “more data collection, more surveillance by intermediaries, and more KYC requirements, turning our financial systems into a panopticon.” Her statements come in the wake of recent KYC data leaks, when fintech company Revolut exposed clients' passports and full Bitcoin transaction histories following a fraudulent government request.
Peirce, long considered the most crypto-friendly voice at the SEC, warned against “data maximalists” who assume that more information collection is always better. She suggested allowing companies to rely on a third party for identity verification, instead of each organization separately copying and storing the same confidential data “in dozens of institutions.” These ideas are timely, as Peirce revealed that her speech took place during the “penultimate week” of her tenure as commissioner.
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