Project Mandala, developed by the BIS Innovation Hub, is a compliance solution targeting the complexities of cross-border payments for both commercial and central banks.
In its recent report on the project, which offers a highly detailed review, we can summarise by saying it has been deemed a success.
This compliance-by-design framework aims to streamline the often cumbersome regulatory processes tied to these transactions, which traditionally require stringent adherence to diverse national and international regulations.
Through Mandala, BIS seeks to simplify the cross-border transaction landscape by offering pre-validation of compliance and an automated monitoring system that could significantly reduce processing delays and errors due to compliance issues.
A Compliance-Driven Approach to Cross-Border Payments
Central to Mandala’s architecture are three core components: the peer-to-peer (P2P) messaging system, the rules engine, and the proof engine.
These elements collectively support the platform’s goal to conduct compliance checks before transactions occur.
The P2P messaging system, for instance, facilitates encrypted communication between entities involved in a transaction, ensuring confidentiality and security without the need for intermediaries.
Additionally, the rules engine operates as a repository for regulatory measures, translating them into machine-readable formats.
This structure allows for real-time regulatory compliance that can accommodate diverse jurisdictional requirements.
Use Cases Demonstrating Regulatory Versatility
Project Mandala’s architecture is tested against two specific use cases to illustrate its adaptability to varying regulatory demands across jurisdictions.
The first case explores cross-border lending between Singapore and Malaysia, while the second examines the acquisition of unlisted debt securities between Korea and Australia.
Both cases aim to showcase how Mandala’s compliance system can handle sanctions screening, capital flow management (CFM) requirements, and specific data-sharing needs, allowing financial institutions to complete transactions with minimal manual intervention.
For cross-border lending in Singapore and Malaysia, for instance, the compliance process within Mandala ensures that the central bank and financial institutions can track and validate compliance in real time.
This offers an added layer of security and efficiency by allowing entities to handle complex regulatory checks – such as sanctions screening and foreign currency controls – through the platform.
In addition, the decentralised P2P system enables commercial banks to communicate compliance needs seamlessly, ultimately reducing transaction costs and operational delays.
Efficiency and Privacy Gains
One of the most impactful aspects of Mandala is its potential to minimise failed transactions.
This reduction stems from Mandala’s pre-validation compliance checklist, which confirms that all regulatory obligations are met before payment initiation.
As such, the system is designed to support “straight-through processing,” where the compliance checks occur as part of the initial transaction stages, minimising the need for subsequent corrections and RFIs.
Additionally, the system’s design promotes user privacy, as encrypted compliance proofs can travel within the transaction’s data chain, protecting sensitive information from unauthorised access.
Future Integration and Scalability
The scalable design of Project Mandala allows for future integration with other financial technologies and regulatory frameworks.
Potential expansions could include interoperability with wholesale central bank digital currencies (CBDCs) or enhanced use of tokenization and programmable digital assets.
By working alongside established systems like Swift and exploring collaborations with existing projects like mBridge, Mandala is poised to serve as a key facilitator in the evolving financial landscape.
By blending compliance with technology, Mandala provides a framework that is both flexible and secure, potentially setting new standards in regulatory compliance.
While it is still in the proof-of-concept phase, Mandala’s potential to improve compliance efficiency and enhance security makes it a promising solution for international financial institutions seeking to adapt to the future of digital payments.
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