The Bank for International Settlements (BIS), in collaboration with central banks from Australia, Korea, Malaysia, and Singapore, has successfully showcased the feasibility of integrating regulatory compliance into cross-border financial transactions.
Disparate policy and regulatory frameworks across different jurisdictions remain significant barriers to seamless and efficient cross-border payments. These discrepancies heighten the compliance burden throughout the payment chain, elongate transaction times, and create uncertainties for stakeholders.
Known as Project Mandala, this Proof-of-Concept aims to alleviate the policy and regulatory compliance challenges by automating compliance procedures, enabling real-time transaction monitoring, and enhancing transparency around country-specific regulations. This initiative addresses key issues highlighted in Project Dunbar, another BIS-led effort that focused on developing an experimental multiple central bank digital currency (mCBDC) platform.
“Mandala is pioneering the compliance-by-design approach to improve cross-border payments without compromising privacy or the integrity of regulatory checks,” stated Maha El Dimachki, head of the BIS Innovation Hub Singapore Centre. “We are optimistic about the potential of these early results to enhance cross-border payments.”
The initiative features a compliance-by-design decentralized system, which streamlines cross-border payments by embedding regulatory requirements within a network comprising financial institutions and central banks. This decentralized architecture includes three main components: a peer-to-peer messaging system, a rules engine, and a proof engine.
It ensures that all required compliance checks are completed prior to initiating payment instructions. Upon completion of these checks, the Mandala system automatically generates a compliance proof that can accompany any digital settlement asset or payment instructions across borders.
The project successfully demonstrated its technical viability in cross-border lending between Singapore and Malaysia, as well as cross-border financing for capital investments between South Korea and Australia, effectively automating sanctions screening and reporting requirements.
Mandala is a future-proof concept, designed to integrate with both emerging digital asset settlement systems, like wholesale central bank digital currencies, and established payment messaging systems such as SWIFT. Additionally, for digital assets, Mandala features programmable compliance that can be incorporated into smart contracts.