The Bank for International Settlements (BIS) and its central bank partners have demonstrated that regulatory compliance can be integrated into cross-border transaction protocols through Project Mandala. This initiative is a collaboration between the BIS Innovation Hub Singapore Centre, the Reserve Bank of Australia, the Bank of Korea, Bank Negara Malaysia, and the Monetary Authority of Singapore.
Project Mandala has reached proof of concept stage and aligns with G20 priority actions for enhancing cross-border payments. The project aims to reduce costs and increase transaction speed while maintaining regulatory compliance. Maha El Dimachki, Head of the BIS Innovation Hub Singapore Centre, stated: “Mandala is pioneering the compliance-by-design approach to improve cross-border payments without compromising privacy or the integrity of regulatory checks.” She expressed optimism about these early results' potential to enhance cross-border payments.
Brad Jones, Assistant Governor Financial System at the Reserve Bank of Australia, commented on the collaboration: “We have welcomed the opportunity to collaborate with the BIS Innovation Hub and central bank partners on this important initiative.” He added that Project Mandala shows how technology can help banks meet various regulatory requirements underpinning safe cross-border payments. While further exploration is needed regarding this approach's viability, it promises improvements in efficiency and safety for future transactions.
Regulatory frameworks are crucial for global financial system operations but complying with different jurisdictional regimes presents challenges that increase costs and slow down transactions. Project Mandala seeks to address these issues by automating compliance procedures and providing real-time reporting for regulators.
The project developed a compliance-by-design decentralized system embedding regulatory compliance within financial institutions' networks. This architecture includes a peer-to-peer messaging system, a rules engine, and a proof engine ensuring all necessary checks are completed before initiating payment instructions. Once completed, Mandala generates a compliance proof accompanying any digital settlement asset or payment instruction across borders without revealing customer data.
Technical feasibility was proven through two use cases: streamlining compliance processes for capital flow management measures between Singapore and Malaysia; automating sanctions screening requirements for unlisted securities transactions between South Korea and Australia.
Mandala integrates with both digital asset settlement systems like wholesale central bank digital currency as well as traditional systems such as Swift. This dual integration supports future digital asset ecosystems alongside existing infrastructures by deploying programmable compliance embedded into smart contracts.