Project Mandala: Automating Global Payment Compliance Digitally

The landscape of global finance is undergoing a significant transformation, driven by the imperative to enhance efficiency, transparency, and security in cross-border transactions. At the forefront of this evolution is Project Mandala, an ambitious initiative by the Bank for International Settlements (BIS) Innovation Hub, aimed at embedding regulatory compliance directly into cross-border payment systems. This innovative project is poised to redefine how international payments are processed, moving towards a future where compliance is automated, friction is minimized, and financial integrity is upheld with greater ease.

The Genesis of Digital Compliance: Building on Prior Innovations

Project Mandala emerged from a recognition that traditional cross-border payment systems often suffer from significant inefficiencies due to complex, disparate, and often manual compliance procedures. These procedures can lead to delays, increased costs, and operational friction, hindering the seamless flow of international capital and trade. To address these challenges, Mandala builds upon the foundational work of initiatives like Project Dunbar, which explored a multi-central bank digital currency (mCBDC) platform for cross-border settlements. By leveraging insights from such pioneering projects, Mandala aims to move beyond mere settlement efficiency to tackle the intricate layers of regulatory compliance.

The project, initially spearheaded by the BIS Innovation Hub Singapore Centre, brought together a formidable consortium of central banks: the Reserve Bank of Australia, the Bank of Korea, Bank Negara Malaysia, and the Monetary Authority of Singapore. This collaborative approach underscores the global nature of the problem and the shared commitment to finding innovative solutions that transcend national borders.

Compliance-by-Design: A Paradigm Shift in Regulatory Oversight

Encoding Rules for Real-Time Validation

At the heart of Project Mandala’s innovation lies its "compliance-by-design" architecture. This approach fundamentally re-imagines regulatory oversight by embedding jurisdiction-specific rules directly into a shared digital framework. Instead of post-transaction verification, Mandala enables real-time monitoring, pre-validation of checks, and automatic generation of compliance proofs *before* payments are executed. This proactive stance significantly reduces the risk of non-compliance and streamlines the entire transaction lifecycle.

The system functions on a peer-to-peer network, where each participating institution (banks, regulators) operates a dedicated node. These nodes are sophisticated hubs, combining three critical components:

• Secure Messaging Layer: Ensures encrypted and tamper-proof communication between participants.
• Rules Engine: Translates complex regulatory requirements into executable code, enabling automated interpretation and application of rules.
• Proof Engine: Verifies compliance automatically, often utilizing advanced cryptographic techniques.

These automatically generated proofs can then be attached to central bank digital currencies (CBDCs) or traditional Swift messages. This ensures that all necessary regulatory requirements are demonstrably met and validated before funds are transferred, providing an unprecedented level of assurance and efficiency.

Privacy and Efficiency through Advanced Cryptography

A crucial aspect of Project Mandala is its commitment to privacy, particularly in sensitive financial transactions. The project leverages cutting-edge cryptographic techniques such as zero-knowledge proofs (ZKPs) and multi-party computation (MPC). ZKPs allow one party to prove that a statement is true to another party, without revealing any information beyond the validity of the statement itself. MPC enables multiple parties to jointly compute a function over their inputs while keeping those inputs private. These technologies are instrumental in protecting proprietary and sensitive information during compliance checks, addressing a key concern in cross-border data sharing.

Phase 1 of Mandala successfully demonstrated these capabilities through two distinct use cases: cross-border lending between Singapore and Malaysia, and capital investment financing between South Korea and Australia. Both scenarios highlighted the system's ability to accelerate processing times, eliminate redundant checks, and safeguard privacy, showcasing the tangible benefits of automated compliance.

Project Mandala: Advancing into Phase 2

Proven Integration and Future Expansion

The success of Phase 1 culminated in the publication of BIS's final report in October 2024, conclusively affirming the feasibility of embedding compliance directly within cross-border transaction protocols. Mandala demonstrated its robust integration capabilities by successfully connecting with both Project Mariana's wholesale CBDC network and the established Swift transaction manager, underscoring its potential to complement and enhance existing and emerging payment infrastructures.

Building on this strong foundation, Project Mandala officially transitioned into Phase 2 in November 2025. This new phase marks a significant expansion, welcoming additional key participants including the Bank of France, the Reserve Bank of India, the Central Bank of Kuwait, Bangko Sentral ng Pilipinas, and further involvement from Bank Negara Malaysia. The objectives for Phase 2 are ambitious and multifaceted:

• Scalability Testing: Rigorously testing the system's ability to handle a larger volume of transactions and participants.
• Expanded Use Cases: Exploring new applications and scenarios for automated compliance beyond initial lending and investment.
• Programmable Compliance for Digital Assets: Investigating how these compliance-by-design principles can be extended to the rapidly evolving realm of digital assets, including tokenized securities and stablecoins.

Towards a Unified Global Compliance Layer

If Project Mandala continues to prove its effectiveness and scalability, it holds the potential to emerge as a foundational, common compliance layer for global payment systems. Such an achievement would be instrumental in supporting the strategic goals set by the G20 and the Financial Stability Board (FSB) to make cross-border payments significantly faster, safer, more transparent, and ultimately, cheaper. By automating compliance, Mandala promises to dismantle many of the structural impediments that currently hinder efficient international financial flows, paving the way for a more integrated and resilient global financial ecosystem.