BIS: Regulatory Compliance Can Be Embedded in Cross-Border Protocols

The Bank for International Settlements (BIS) says it has demonstrated that regulatory compliance can be embedded in cross-border transaction protocols.

BIS announced Tuesday (Oct. 29) it made this discovery when working on its Project Mandala, a collaboration with four central banks.

“Mandala is pioneering the compliance-by-design approach to improve cross-border payments without compromising privacy or the integrity of regulatory checks,” Maha El Dimachki, head of the BIS Innovation Hub Singapore Centre, said in a news release. “We are optimistic about the potential of these early results to enhance cross-border payments.”

BIS argues that while regulatory frameworks governing cross-border transactions are critical to the global financial system, complying with different jurisdictions can drive up costs and affect the speed of transactions.

Project Mandala, the release adds, is designed to increase the speed and efficiency of cross-border transactions by automating compliance procedures, enhancing transparency of country-specific policies and offering real-time reporting and monitoring for regulators and supervisors.

“Project Mandala developed a compliance-by-design decentralized system that could help streamline cross-border payments by embedding regulatory compliance within a network of financial institutions and central banks,” BIS said. “This decentralized architecture integrates three core components: a peer-to-peer messaging system, a rules engine and a proof engine.”

Joining BIS in Project Mandala are the Reserve Bank of Australia, the Bank of Korea, Bank Negara Malaysia and the Monetary Authority of Singapore.

“The project, which has now reached proof of concept stage, aligns with the G20 priority actions for enhancing cross-border payments, as it has the potential to reduce costs and increase transaction speed, while preserving regulatory compliance,” BIS said.

The news comes on the heels of another G20-related milestone earlier this month, when global messaging service Swift said that it was exceeding the G20 target of having 75% of international payments processed within an hour.

In fact, Swift said Oct. 17, 90% of the cross-border payments made on its network arrived at their destination bank within an hour.

“Swift’s data shows that the speed of processing transactions to all but two of the top 40 countries on its network — by volume of payments received — continues to be above the G20’s target of one-hour end-to-end processing for 75% of international payments by 2027, while international payments to six regions are settling in the customer’s account more quickly than they were a year ago,” the organization said in a news release.