The Bank for International Settlements has said that Project Mandala, an initiative to create an automated regulatory compliance system for cross-border payments, has reached the proof-of-concept stage.
Cross-border payments are in high demand, but issues like slow settlement and currency conversions have hindered widespread adoption. It is also difficult for financial institutions to navigate the country-by-country regulatory hurdles.
For that reason, Project Mandala is one of the key initiatives for the BIS this year. The first steps in the proof-of-concept phase will be for all the participating institutions, which include commercial banks, central banks, and other financial technology companies, to operate a Mandala node within their systems.
Compliance by Design
Through the nodes, the institutions can interact through a peer-to-peer messaging system that provides payment policies in the target country. Project Mandala stores cross-border regulations in a repository that can be accessed by all the participants.
The system uses zero-knowledge proofs, cryptographic protocols that enable one individual, called the prover, to convince another, known as the verifier, that a claim is true. The verification process is conducted without either party disclosing any details about the claim itself.
A BIS official in Singapore, Maha El Dimachki, said the organization is encouraged by the early results of Project Mandala and believes the new system can make an impact on cross-border payments. Dimachki also said the BIS is “pioneering the compliance-by-design approach to improve cross-border payments without compromising privacy or the integrity of regulatory checks.”
An Active Organization
The BIS is a consortium of seven central banks, including the Bank of France, Swiss National Bank, Bank of Japan, Bank of Korea, Bank of Mexico, Bank of England, and the Federal Reserve Bank of New York. The organization’s goal is to fuel innovation in global financial systems.
The BIS has been active of late. Earlier this year, the organization announced that Project Agora is in the design stage. That initiative, which has received buy-in from 41 financial firms, will explore how tokenized commercial bank deposits can be integrated with central bank digital currencies on a centralized platform.
