Outgoing SEC Commissioner Hester Peirce has called for replacing the government's data-heavy financial surveillance framework with zero-knowledge proofs, arguing continuous personal-data collection is costly and largely ineffective at catching criminals. World Foundation's Remco Bloemen backs the shift but says regulators still need a sandbox to test the technology before broad adoption.
Peirce Challenges the Surveillance Model
Speaking at a Securities Industry and Financial Markets Association event, Peirce called for an overhaul of the compliance mandates that require institutions to continuously collect personal data under know-your-customer and anti-money-laundering rules. She argued the current approach risks turning financial infrastructure into a regulatory "panopticon," built on the assumption that gathering more data improves market integrity.
According to Peirce: "The bigger haystack, however, makes it harder to find the needles." Every piece of confidential data collected also raises the risk of mishandling or breaches, she said, imposing costs on compliant institutions and ordinary Americans alike. In her view, zero-knowledge proofs and attribute-based credentials could cut unnecessary data collection while preserving transparency in the underlying transaction record.
Industry Backs the Shift, but Wants a Sandbox First
Remco Bloemen, head of blockchain at World Foundation, told Bitcoin.com News that zero-knowledge proofs could realistically replace large parts of traditional KYC and AML rules by letting institutions verify pass/fail attributes without accessing the underlying personal data. He said the main technical challenge is translating each verification into a precise, computable circuit, including clear definitions for issues like aliases in sanctions screening.
Bloemen said the most important missing piece for wider adoption is a clearly defined regulatory sandbox where institutions can test the technology in close collaboration with regulators, since privacy-preserving KYC and AML rules will need to be battle-tested and established in case law first. He added that removing centralized KYC databases would eliminate the primary target for large-scale breaches, though shifting to a new system introduces risks institutions will still need to manage.
Peirce, who is set to leave the SEC before the end of the year, urged the commission and market participants to move toward attribute-based verification, encouraging registered entities to rely on third-party checks to cut operational costs and reduce cyber vulnerabilities.
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