SEC's Peirce Urges Regulators to Stop Collecting So Much KYC Data

SEC Commissioner Hester Peirce used a Wednesday speech in New York to argue that the government should collect far less personal data from financial customers. She spoke at the SIFMA Digital Assets Conference on September 23. Peirce said she was in her penultimate week as a Commissioner and stressed that her views were her own.

The Haystack Argument

In her prepared remarks, Peirce called the know your customer and anti-money laundering system a data haystack. Firms collect names, birthdays, addresses and ID numbers in the hope that law enforcement finds a few criminals inside. She argued that a bigger haystack makes the needles harder to find.

She said the cost of running the system seems to dwarf its effectiveness at stopping bad actors. She also warned that customers rarely see the risk to their own information. Every extra field collected raises the chance that someone mishandles it, by accident or on purpose.

Peirce described a fork in the road. One path means more data collection and more intermediary surveillance. The other uses new technology to catch criminals while gathering less personal information than ever before.

She also took a swipe at a shared habit. Too many crypto enthusiasts fixate on "number go up," she said. Too many regulators fixate on "data go up." She told the audience their firms know how costly monitoring and reporting on customers is.

SEC.gov carries the full text of Commissioner Peirce's September 23 remarks.

What She Wants Instead

Peirce pointed to attribute-based credentials. A verifiable credential could confirm a single fact, such as age or accredited investor status, without revealing the data behind it. She added that a zero-knowledge proof can tell a counterparty a person meets a requirement without exposing a name, income or address.

She also took aim at duplicate collection. Under current customer identification rules, each regulated entity generally has to verify a customer on its own. Peirce asked why a customer vetted by one trustworthy firm should not be relied on by the next. That duplication, she said, copies sensitive data across dozens of institutions.

She said the tools to limit what people hand over already exist. She suggested regulators ask, for every rule, whether they need the specific data or only the fact it proves.

She questioned whether reporting thresholds are set too low. She also warned against lowering them just because new tools make collecting data cheap.

Where Crypto Fits

Peirce said public blockchains produce permanent, auditable ledgers that law enforcement can study with forensic tools. In her view, that transparency lets regulators reduce unnecessary data collection without losing visibility. She defined a truly permissionless network as one run by immutable code, with no custodian and neutral treatment of all users.

She opened by discussing the SEC's Innovation Exemption, announced the week before. It is a time- and size-limited exemption for trading tokenized securities on crypto networks through automated market makers. She called it a bridge toward durable rulemaking and said tokenization is coming.

What Comes Next

The speech is not a rule, a proposal or an SEC position. Peirce said plainly that she speaks for herself. She did say the missing piece is a rulebook that would allow and encourage these tools. Any change to customer identification rules would need action from the full Commission and other agencies.

This article is for information only and is not legal or investment advice.