Hester Peirce wants financial platforms to verify that customers meet legal requirements without making each company store another complete identity file.
What would the customer actually share?
Imagine that a crypto investment platform needs to establish three facts before accepting a customer:
The platform receives those answers without necessarily obtaining the customer’s passport, address or financial records.
That is the model SEC Commissioner Hester Peirce described in remarks at SIFMA’s Digital Assets Conference. She proposed using verifiable credentials and zero-knowledge proofs for identity, compliance and product-eligibility checks.
Her comments represent her personal position. They are not an SEC rule, proposal or exemption. The SEC also cannot independently rewrite the wider customer-identification framework established under the Bank Secrecy Act and administered by FinCEN and other regulators.
Where would the identity check happen?
A trusted issuer, such as a government agency, regulated institution or approved verification provider, would first examine the customer’s original documents. It could then issue a cryptographically signed credential that the customer stores in a compatible digital wallet.
A verifiable credential carries attestations from that issuer. A zero-knowledge proof can use those attestations to confirm that a particular condition has been met without revealing the information used to reach the answer.
This changes where personal data is held rather than making identity verification disappear. The original issuer still needs reliable evidence, while the crypto platform may receive only the facts relevant to the service being requested.
Peirce raised a related data-minimization question when discussing whether tokenized-security records always need conventional fields such as names and physical addresses. Coindoo examined that debate in its report on the SEC’s proposed tokenized-stock ownership rules.
Can financial firms use this approach today?
FinCEN has already accepted a narrower use of the technology. Its September 8 guidance says banks and credit unions may use certain government-issued verifiable digital credentials, including mobile driver’s licences, as a method of verifying natural-person customers.
The guidance did not remove existing legal obligations. Covered institutions must still obtain required identifying information and retain the prescribed records. A crypto company’s duties also depend on its activities and whether it operates as a money-services business, securities intermediary, bank or another regulated entity.
What would private KYC fail to solve?
Sanctions status and customer eligibility can change, so credentials require expiration, status and revocation checks. Platforms must also know whether the issuer performed a reliable original verification. A stolen wallet or compromised credential creates another route for identity fraud.
Receiving less personal information would reduce a platform’s breach exposure only if it stops retaining the underlying documents. The risk would not vanish; more of it would sit with the organization that issued or maintained the credential.
Selective proofs also cannot establish the source of a customer’s funds or replace transaction monitoring and suspicious-activity reporting.
The technology is ahead of the rulebook
Financial institutions can already verify signed digital credentials. The unfinished policy question is when they may retain proof that a check occurred instead of collecting the personal data behind it.
Peirce’s proposal would make KYC less repetitive, not optional. Turning it into standard practice would require regulators beyond the SEC to decide that a verified answer can sometimes satisfy the law without another complete identity file.§
Alex is Editor-in-Chief of Coindoo and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets – crypto first, then everything else.
It started in 2016 with Bitcoin. Like most people at the time, he didn’t fully understand it – so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can’t properly understand one without the other.
What drives him is straightforward: he wants to know why something is happening, not just that it’s happening. Most market coverage stops at the headline – price up, price down, here’s a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn?
He holds a degree in Tourism from New Bulgarian University – not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That’s probably why he hasn’t stopped.
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