A New Phase of Open Banking Regulation
Open Banking is entering a new regulatory phase. Early frameworks focused on data access and interoperability. Today, regulators are shifting attention to privacy, data minimization, and purpose limitation.
In the European Union, GDPR and PSD2 enforcement increasingly emphasizes how long financial data is stored, where it is stored, and whether it is reused beyond its original purpose. In the United States, data privacy laws such as state level consumer protection acts are tightening expectations around consent, disclosure, and liability. Other regions are following similar paths, aligning financial innovation with stricter privacy obligations.
The direction is clear. Access alone is no longer enough. Platforms must prove that they collect only what is necessary, store less sensitive data, and reduce downstream exposure.
Why Regulation Is Shifting Toward Privacy and Data Minimization
These regulatory shifts are not hypothetical. They are backed by enforcement actions and public debates about how personal financial data should be protected, how user consent should be obtained, and how companies must justify their data practices.
For platforms that handle financial data, this presents a core challenge:
How do you meet compliance requirements without becoming a repository of sensitive data that regulators are trying to limit?
Traditional approaches that scale centralized storage of personally identifiable information increase liability and drag compliance teams into heavy audit burdens.
This is where a shift toward purpose-specific verification and privacy-preserving proofs becomes essential.
From Data Collection to Verifiable Proofs
A privacy first compliance model focuses on verification rather than retention. Instead of storing raw data, platforms verify specific conditions such as identity validity, business legitimacy, or transaction risk and retain only cryptographic evidence.
This shift allows platforms to meet regulatory requirements while significantly reducing stored PII. It also aligns with the core principles behind modern open banking privacy rules.
zkMe provides 3 solutions designed for different compliance scenarios within this model.
zkKYC: User Identity Verification Without Excessive Data Storage
Platforms need to verify user identity to meet regulatory Know Your Customer requirements. Historically, this meant collecting copies of passports, IDs, and detailed personal information, and storing them indefinitely for audit purposes. This creates a large attack surface, ongoing security obligations, and rising operational costs.
A modern privacy-centric approach verifies only the claims that regulators require (such as age, citizenship, or identity validity) without retaining the underlying documents. By using zero-knowledge proofs and cryptographic verification, platforms can confirm that a user's identity attributes are valid and that regulatory checks like risk assessments have been performed.
zkMe
What is zkKYC - The Private and Compliant Digital Identity
This significantly reduces the need to store sensitive information and ensures compliance with expectations around data minimization. Such an approach allows a one-time verification that can be re-verified across multiple interactions while limiting data retention to cryptographic evidence rather than raw data.
zkKYB: Business Verification and Due Diligence With Less Data Exposure
Verifying businesses and their ultimate beneficial owners is another compliance requirement that often leads to repeated collection and storage of corporate documents, ownership charts, and certification data. Each copy expands liability and risk, especially when privacy laws tighten around how long data can be held and how it can be reused.
In a privacy-first compliance flow, platforms confirm business legitimacy through reuse of secure proof of verification, without needing to store full sets of sensitive business records.
This enables faster onboarding and due diligence that still meets regulatory expectations. Because only proofs and claims are stored, rather than full corporate data, platforms reduce long-term exposure while aligning with global rules that emphasize limited retention and strict purpose use.
zkMe
What is KYB - A Privacy-First Guide to Business Verification on Web3
KYT: Transaction Monitoring That Focuses on Risk, Not Raw Data
Regulators require platforms to monitor transactions for illicit activity to satisfy anti-money-laundering and fraud detection obligations. Traditional systems ingest account histories, logs, and user behavioral data to analyze patterns. However, these practices broaden data stores and elevate privacy risks.
A modern approach centralizes monitoring logic around transaction risk signals instead of personal histories. Platforms can analyze on-chain or off-chain transaction flows for anomalies, suspicious patterns, and compliance flags, while minimizing retention of personal details beyond what is strictly necessary for regulatory reporting.
This maintains compliance with transaction screening rules without over-collecting data that privacy regulations aim to protect.
zkMe
zkMe KYT - Know Your Transaction
Toward a Compliance Stack That Meets Regulatory Expectations
Regulators in major markets are moving from frameworks that enable data access to ones that enforce data purpose limitations, minimal retention, and strict user control. Open banking rules in the United States now include explicit privacy requirements, and Europe's GDPR and recent data access laws extend privacy focus across services and sectors.
As rules evolve and enforcement activity increases, platforms must adapt by designing compliance systems that reduce stored sensitive data, focus on required proofs rather than raw data, and streamline verification flows to match regulators' expectations. This shift improves security and user trust while lowering compliance costs and operational burden.
By rethinking compliance with a privacy-first lens, platforms can navigate coming privacy rules with confidence, protect users' data, and meet regulatory standards in a sustainable way.
About zkMe
zkMe provides protocols and oracle infrastructure for the compliant, self-sovereign, and private verification of Identity and Asset Credentials.
It is the only decentralized solution capable of performing FATF-compliant CIP, KYC, KYB, and AML checks natively onchain, without compromising the decentralization and privacy ethos of Web3.
By combining zero-knowledge proofs with advanced encryption and cross-chain interoperability, zkMe enables verifiable identity and compliance data to remain entirely under the user's control. This ensures that sensitive information never leaves the user's device while maintaining regulatory-grade assurance for partners and protocols.
