Peirce Urges Less KYC Data Collection as Midnight Builds ZK Tools

Hester Peirce called for a review of financial identity checks during a September 23 speech. She argued that verifiable credentials and zero-knowledge proofs could confirm facts about a customer while limiting access to the underlying data. Charles Hoskinson responded to coverage of her remarks with the phrase “Smart Compliance,” drawing attention to an approach Midnight is developing within the Cardano ecosystem.

Peirce Targets Repeated KYC Checks

Under current customer identification rules, financial institutions generally collect and verify information such as a client’s name, date of birth, address and identification number. Peirce questioned why several institutions should each retain a copy of those records when a trusted entity has already completed the check.

She proposed a narrower form of verification. An institution might need to know whether someone meets an age requirement, qualifies as an accredited investor or has passed another eligibility check. A verifiable credential could attest to that fact, while a zero-knowledge proof could confirm it without disclosing the information used to establish it.

Peirce called for rules that would make it easier for regulated firms to rely on identity verification performed by trusted third parties. She made clear that the speech expressed her personal views, not an SEC decision.

Midnight Develops Private Identity Tools

Midnight is a separate partner blockchain in the Cardano ecosystem. Its design lets applications use private information to generate a proof that a condition has been met without placing the underlying data on a public ledger.

Teams in its ecosystem are applying that model to identity. Midnames is developing verifiable credentials that could disclose a specific attribute instead of an entire document. Triple Play is working on checks for attributes including age, nationality and KYC status. These products are under development; they have not been presented as replacements for the checks US financial institutions must currently perform.

Hoskinson’s “Smart Compliance” comment identified the overlap between Peirce’s examples and Midnight’s intended use cases. Peirce did not mention Midnight or Cardano in her speech.

US Identity Rules Remain a Separate Hurdle

A cryptographic proof can establish that an application’s condition was met. It cannot, on its own, authorize a regulated institution to change how it identifies customers. Peirce said the technology to limit disclosure exists, but rules governing the collection of customer information and reliance on third-party checks need further examination.

That distinction defines the current position for Midnight’s identity tools. An application could keep supporting documents offchain and reveal only the required result. A US financial institution would still need a legally accepted way to rely on that result when fulfilling its customer identification duties. Peirce’s speech put the repeated collection of the same records under scrutiny; it did not remove that requirement.