BIS-Led Project ‘Mandala’ Enables Automated Compliant Cross-Border Transactions
The Bank for International Settlements, with various central banks, has come up with Project Mandala in a bid to enable seamless cross-border transactions with an automated mechanism for compliance. Introducing decentralized technology along with compliance-by-design principles, Them aspires to international financial transactions that will be quicker, safer, and cheap.
On October 28, BIS announced that Mandala had completed its proof-of-concept phase, the most important milestone of the collaborative project. Two real-world scenarios have thus far been tested for Mandala. First was a cross-border lending transaction between Singapore and Malaysia, which demonstrated that Mandala can make CFM processes and sanctions screening easier for financial institutions. This capacity enhanced the central banks’ abilities in monitoring compliance issues in real-time and ensured smooth funds transfers between countries.
In the second, them facilitated a cross-border investment transaction from South Korea into Australia: this involved automated CFM reporting and sanctions screening against an unlisted securities transaction. Again, that represents flexibility and the ability to operate in several regulatory regimes. Important steps toward less friction in international money transfers.
A Compliance-by-Design Approach
The Mandala network is a decentralized network of nodes, with each node operated by the participating institution, which, in turn, includes both commercial and central banks. Each of its nodes would contain, at the minimum, a P2P messaging system, a rules engine, and a proof engine. This will be important because any of the nodes would connect directly with others around it. This means there will be no intermediaries, and transactions would go through without or with less complication.
Mandala incorporates compliance by design, embedding regulatory requirements from different jurisdictions for sanction screening and CFM measures within its network. Before the release of the funds, cryptographic proofs for compliance are generated to be certain that the regulatory standards are met without compromising efficiency. Furthermore, in zero-knowledge or ZK proofs, privacy is maintained to make sure that compliance is preserved without leaking sensitive information.
Digital Asset-Traditional Finance Systems Integration
Project Mandala is supportive of traditional payment networks, such as Swift, and all forms of digital assets, including central bank digital currencies and regulated stablecoins. The core of asset mobility in Mandala is a policy wrapper contract. It will lock the source asset, mint a wrapped version for cross-border mobility, and cater to compliance obligations checked by the smart contracts via cryptographic proofs.
In the Direction of Global Financial Efficiency
While the BIS has underlined that Mandala remains an experiment, the extent of its success thus far suggests that it has broad applications in cross-border finance. Automating compliance, Mandala is something of a blueprint as to how international transactions can be more efficient, private, and secure-at least insofar as any valuable insight into the future of compliance and programmable finance is concerned.
