What would the customer actually share? Imagine that a crypto investment platform needs to establish three facts before accepting a […]
The post SEC Commissioner Wants Crypto KYC With Less Data appeared first on Coindoo.
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.§
The post SEC Commissioner Wants Crypto KYC With Less Data appeared first on Coindoo.
Source: https://coindoo.com/sec-commissioner-wants-crypto-kyc-with-less-data/
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always conduct your own research (DYOR).
