SEC Commissioner Hester Peirce is advocating for the integration of zero-knowledge proofs in KYC and AML compliance to prevent financial systems from becoming a data-collecting "panopticon." Meanwhile, the Federal Reserve has advanced two major stablecoin regulatory proposals under the GENIUS Act, targeting capital reserves and issuance procedures. These actions coincide with the SEC's new five-year Innovation Exemption for tokenized stocks, which has drawn liquidity fragmentation warnings from SIFMA.
Hester Peirce's remarks on zero-knowledge proofs
- ▪SEC Commissioner Hester Peirce urged regulators on September 23, 2026, to use zero-knowledge proofs and digital credentials to run KYC checks while collecting less personal data.
- ▪SEC Commissioner Hester Peirce's September 23, 2026, remarks on zero-knowledge proofs represent her personal policy views and do not alter current KYC and AML rules for broker-dealers.
Cryptographic identity verification
- ▪Aztec Laboratorium Limited acknowledged that existing KYC and AML rules do not clearly allow a cryptographic proof to replace stored records
- ▪The SEC Crypto Task Force met with Aztec Laboratorium Limited on July 17, 2026, to discuss crypto assets and Aztec's ZKPassport system for cryptographic identity verification.
The SEC's tokenized stock exemption
- ▪The SEC's Innovation Exemption, issued September 17, 2026, allows qualifying tokenized stocks to trade through permissioned automated market makers from September 17, 2026, through September 17, 2031.
- ▪SIFMA President and CEO Kenneth Bentsen Jr. warned that the SEC's Innovation Exemption for tokenized stock could confuse investors and split prices and liquidity across parallel markets
- ▪The SEC's tokenized stock exemption framework caps Tier 1 stocks at 75 symbols and 0.25% of prior-month average daily volume, and Tier 2 at 250 symbols and 2.5%.
Federal Reserve's stablecoin proposals
- ▪The U.S. Federal Reserve's second proposal on September 24, 2026, outlines procedures for regulated banks to issue stablecoins, requiring a business plan, financial information, and relevant policies.
- ▪The U.S. Federal Reserve's two stablecoin proposals under the GENIUS Act, released on September 24, 2026, are open for a 60-day public comment period
- ▪The U.S. Federal Reserve's stablecoin proposal on rewards, issued September 24, 2026, matches the Office of the Comptroller of the Currency's approach, presuming certain third-party arrangements are prohibited payments of interest or yield
- ▪The U.S. Federal Reserve proposed two rules on September 24, 2026, to implement stablecoin issuer oversight under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act.
- ▪The U.S. Federal Reserve's first proposal under the GENIUS Act, issued September 24, 2026, governs capital and reserve requirements for stablecoins and outlines accepted stablecoin activities at supervised banks
Implementation of the GENIUS Act
- ▪The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act serves as the primary law governing stablecoin rewards following the failure of the Digital Asset Market Clarity Act in Congress
- ▪The U.S. Treasury Department, the FDIC, and other federal agencies have proposed rules since December 2025 to implement their respective requirements under the GENIUS Act.
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