SEC Commissioner Calls for Changes to Financial Surveillance
SEC Commissioner Hester M. Peirce called for a fundamental overhaul of US financial surveillance laws, warning that outdated legal doctrines and sweeping data collection programs are increasingly incompatible with the Constitutional right to privacy.
At a "Science of Blockchain Conference" at Stanford, Ms. Peirce said that disintermediating technologies like blockchains, smart contracts and zero-knowledge proofs allow people to transact, communicate and coordinate without relying on centralized gatekeepers. She recognized that disintermediation threatens the status quo of regulatory control but argued that such a threat does not justify limiting tools that enhance individual freedom.
She stated that the "third-party doctrine"—the concept that there is no expectation of privacy in information voluntarily provided to others—wrongly denies Americans privacy in their financial lives by treating information Americans shared with intermediaries as outside Fourth Amendment protection. She explained that this doctrine allows the government to access sensitive data—such as bank records—without a warrant, simply because it was provided to a third party. She warned that this legal framework has become the backbone of mass financial surveillance and is increasingly incompatible with modern digital life.
She described the Bank Secrecy Act ("BSA"), which deputizes financial institutions to file millions of Suspicious Activity Reports and Currency Transaction Reports annually, as having created an expansive and costly surveillance regime built on the flawed logic of the third-party doctrine. She criticized the system’s inefficiency—where most reports go unused—and urged regulators to consider whether enforcement goals could not be achieved by other means.
She further criticized the SEC's Consolidated Audit Trail ("CAT") as an invasive surveillance program that collects detailed trading data on every investor without any suspicion of wrongdoing, describing it as "a tool 'one would expect to find in a dystopian surveillance state.'" She stated that CAT replaced a more tailored, on-demand information system, disregarding investor privacy while imposing significant costs. She welcomed recent efforts to limit its scope and called for a broader rethinking of its necessity.
She defended privacy-enhancing technologies like zero-knowledge proofs, encryption, privacy pools and decentralized protocols as tools for individual autonomy in a digital age. She cautioned against efforts to impose surveillance on peer-to-peer systems or to hold open-source developers accountable for others' use of their code, stating that protecting privacy is not a loophole—it is a right.