Add CARA Confidential Audit & Regulatory Assistant Proposal

Development Fund Proposal: CARA – Confidential Audit & Regulatory Assistant

Author: Shehwar Abdullah
Status: Draft / Submitted
Created: 2026-02-19
Version: 1.1

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Abstract

The Confidential Audit & Regulatory Assistant (CARA) is a privacy-preserving regulatory compliance infrastructure layer for the Canton Network. CARA addresses the fundamental tension between financial institutions’ need for data confidentiality and regulators’ requirements for real-time transparency and verifiable compliance evidence.

By leveraging Daml smart contracts, Canton’s sub-transaction privacy model, and cryptographic attestation mechanisms, CARA enables banks to automate AML/KYC compliance, generate verifiable regulatory proofs, and share attestations across institutions—all without exposing sensitive customer data. CARA is designed as shared, composable infrastructure: a set of open-source Daml libraries and developer tools that reduce compliance friction for the entire Canton ecosystem.

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Specification

1. Objective

Problem Statement:
Financial institutions face a binary choice: fully transparent chains that expose sensitive data, or siloed compliance systems that are costly and non-interoperable. Manual reporting creates weeks-long audit cycles that fail to meet real-time supervision mandates.

Intended Outcome:

• Composable Compliance Library: Open-source Daml templates for instant AML/KYC integration.
• Cross-Institutional Attestation Protocol (CIAP): A mechanism for banks to recognize each other's compliance proofs without re-verifying raw data.
• Automated Regulatory Reporting Engine: Real-time generation of SARs/CTRs delivered directly to regulator observer nodes.
• Developer SDK: Tools to accelerate institutional adoption across the Canton ecosystem.

2. Implementation Mechanics

CARA is structured as a four-layer architecture:

• Layer 1: Compliance Verification Engine: Daml templates encoding compliance rules (AML thresholds, sanctions lists) as executable logic.
• Layer 2: CIAP: A standardized protocol for selective disclosure of attestation metadata using Daml’s authorization model.
• Layer 3: Regulatory Reporting Engine: A TransactionMonitor that automatically instantiates SuspiciousActivityReport (SAR) templates for regulator observer nodes.
• Layer 4: Developer SDK: Versioned Daml packages, CLI tools, and pre-built adapters for identity providers (e.g., Onfido, Blockpass).

3. Architectural Alignment

• Sub-Transaction Privacy: Built on Canton’s native capability to show different parties only authorized sub-transactions.
• Daml Authorization: Uses the explicit signatory/observer model to ensure data flows only to parties with a "need-to-know."
• Observer-Party Permissioning: Standardizes the "supervisory node" concept for seamless regulator onboarding.
• Composability: Designed as a library that composes atomically with any Canton asset or settlement dApp.

4. Backward Compatibility

No backward compatibility impact. CARA is an additive, standalone Daml package. It does not modify the Canton protocol or synchronization domain behavior.

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Milestones and Deliverables

Milestone	Name	Delivery	Focus	Deliverables / Value Metrics
M1	Core Compliance Library	Month 3	Daml templates for verification & attestations	Functional KYC/AML workflow on TestNet; <2s latency for attestation creation.
M2	CIAP Protocol	Month 5	Cross-institutional sharing with selective disclosure	Multi-party attestation sharing; 0% PII leakage verified by automated privacy tests.
M3	Regulatory Engine	Month 8	Automated SAR/CTR generation	Reports validated against FinCEN/FCA schemas; <5s delivery to regulator nodes.
M4	Full SDK & Mainnet	Month 10	Production-ready SDK & security audit	Mainnet deployment; independent security audit; documentation rated satisfactory by external devs.

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Acceptance Criteria

The Tech & Ops Committee will evaluate completion based on:

1. Functional Readiness: Demonstrated end-to-end workflows on Canton TestNet (M1-M3) and MainNet (M4).
2. Privacy Verification: Formal proof that no customer PII is visible to unauthorized parties.
3. Security Audit: Independent audit by a Committee-approved firm with all critical findings resolved.
4. Documentation: Comprehensive guides, API references, and knowledge transfer sessions.

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Funding

Total Funding Request: 250,000 CC (Canton Coins)

Payment Breakdown

• Milestone 1: 62,500 CC upon acceptance of the Core Library.
• Milestone 2: 62,500 CC upon successful CIAP demonstration.
• Milestone 3: 62,500 CC upon Regulatory Engine validation.
• Milestone 4: 62,500 CC upon Final Release, Security Audit, and Mainnet Deployment.

Volatility Stipulation:
If the project extends beyond 6 months due to Committee-requested scope changes, remaining milestones will be renegotiated to account for significant USD/CC price volatility.

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Co-Marketing

Upon release, the implementing entity will collaborate with the Foundation on:

• Case Study: "Solving the Privacy Paradox in Regulated Finance."
• Developer Webinar: Live technical deep-dive for the Canton community.
• Announcement: Coordinated press release and ecosystem promotion.

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Motivation & Rationale

Motivation: CARA removes the "Compliance Barrier" that currently stalls institutional adoption. It positions Canton as the only network where institutional-grade compliance and radical privacy can coexist.

Rationale: Daml’s rights-and-obligations model is the only way to model complex regulatory relationships without the data leakage risks inherent in account-based smart contract languages.