The Bank for International Settlements and central banks from Australia, South Korea, Malaysia, and Singapore have introduced Project Mandala, a system that embeds regulatory compliance directly into cross-border financial transactions.

This initiative addresses common hurdles in international transactions, such as varying regulations that often increase costs and slow transaction speeds. According to the BIS, hopes to streamline cross-border payments without sacrificing privacy or the quality of regulatory checks by using a “compliance-by-design” approach.

Project Mandala can also integrate with both modern digital asset systems, like central bank digital currencies, and established systems, such as SWIFT, making it flexible for traditional financial institutions and emerging digital financial systems. 

Improved cross-border transactions

Project Mandala has reached the proof-of-concept stage, demonstrating its functionality in a controlled environment. The project’s objectives align with the G20’s vision of making cross-border payments faster, cheaper, and more transparent.

This system employs a decentralized architecture with three main components: a peer-to-peer messaging system, a rules engine, and a proof engine. These elements ensure that all regulatory checks are completed before payments are processed.

Once checks are verified, a “proof of compliance” is created, which accompanies digital transactions across borders. This compliance proof is also designed to protect user privacy, allowing validation without exposing sensitive customer data.

Project Mandala demonstrated its real-world application through two specific use cases. The first involved cross-border lending between Singapore and Malaysia, where the system automated compliance for capital flow management and sanctions screening.

The second case, involving South Korea and Australia, improved compliance processes for unlisted securities transactions in cross-border financing, according to the BIS.