Mandala Project: Revolutionizing Compliance in Cross-Border Payment Systems

Project Mandala is a BIS Innovation Hub initiative that aims to address the challenges of cross-border payments compliance. The project explores the feasibility of encoding jurisdiction-specific policy and regulatory requirements into a common protocol for various cross-border transactions, including borrowing, foreign direct investment, and payments. The existence of disparate policy and regulatory frameworks between different jurisdictions is a major obstacle to smooth and efficient cross-border payments. These differences contribute to the regulatory compliance burden, increase transaction time, and introduce uncertainties among stakeholders. Project Mandala, led by BISIH Singapore Centre, the Reserve Bank of Australia, the Bank of Korea, the Central Bank of Malaysia, and the Monetary Authority of Singapore, seeks to automate compliance procedures, provide real-time transaction monitoring, and increase transparency and visibility around country-specific policies. The project aims to create a compliance-by-design architecture that can enable more efficient cross-border transfers of digital assets, including central bank digital currencies (CBDCs) and tokenized deposits. It could also serve as a foundational compliance layer for legacy and emerging wholesale or retail payment systems. The measures implemented could include foreign exchange rules, as well as anti-money laundering and countering the financing of terrorism (AML/CFT) measures. Project Mandala aligns with the Financial Stability Board’s 2023 priority actions for enhancing cross-border payments and aims to promote an efficient legal, regulatory, and supervisory environment while maintaining safety, security, and integrity. In an interim project update, Project Mandala has developed a use case that focuses on cross-border lending from Singapore to Malaysia. The team is exploring technological solutions that enable concurrent sanctions screening and compliance checks during the pre-validation phase. A common protocol is used to query the required checks for the lending transaction and generate a proof of policy and regulatory compliance, which can be attached to the settlement asset. This approach aims to simplify compliance procedures and expedite the overall payment process.

Read more