Kraken's parent company, Payward, won a $22 million arbitration judgment against auditor Mazars USA, exposing the real cost of what crypto insiders call "Operation Chokepoint 2.0",a period when regulators and traditional financial institutions quietly restricted crypto firms' access to banking and professional services. The case underscores a broader shift: as regulatory clarity improves, crypto exchanges are rebuilding relationships with banks, auditors, and compliance providers that had largely abandoned the sector.

Why Did Mazars Abandon Kraken's Audit?

Mazars USA withdrew from Kraken's 2022 audit in December 2023, just days before completion, despite having audited the exchange for three consecutive years and issuing clean opinions each time. The firm cited no disagreements with management, no integrity concerns, and no fraud findings before walking away. The timing was striking: the withdrawal came weeks after the SEC filed a complaint against Kraken, a case that was later dismissed with prejudice and resulted in no penalties.

According to Kraken co-CEO Arjun Sethi, the disrupted audit forced the exchange to spend years securing replacement auditors and millions of dollars in legal fees to maintain relationships with banks, regulators, and business partners. For a company pursuing a full banking license in Lithuania, which would enable traditional banking services across the European Economic Area, the audit disruption created significant obstacles.

What Was "Operation Chokepoint 2.0"?

Sethi framed Mazars' withdrawal within a broader pattern of coordinated regulatory actions that restricted crypto firms' access to banking services between late 2022 and early 2023. The pressure came from multiple directions simultaneously:

• Federal Banking Regulators: The Federal Deposit Insurance Corporation (FDIC) sent at least 25 letters urging banks to limit crypto-related activities, and the Federal Reserve denied Custodia Bank a master account despite its Wyoming charter.
• SEC Accounting Guidance: The SEC implemented SAB 121 accounting guidance, which made it economically unviable for banks to hold cryptocurrency in custody.
• Payment Network Collapses: Major payment networks Silvergate and Signature collapsed, cutting off critical infrastructure for crypto-friendly banks.
• Joint Regulatory Statements: Banking regulators issued coordinated warnings about crypto-related business models, signaling institutional disapproval.

FOIA documents later revealed the extent of informal pressure. A House committee investigation concluded that regulators had used informal pressure to sideline legitimate crypto businesses, raising questions about whether the restrictions were legally justified.

How Is the Regulatory Environment Shifting?

Much of this restrictive framework has reversed. The SEC rescinded SAB 121, banking regulators withdrew their joint statements warning against crypto, and congressional oversight has increased. In July 2025, the House passed the CLARITY Act with bipartisan support, 294 votes to 134, which would establish defined oversight between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) while protecting software developers from regulatory overreach.

Kraken has already achieved Federal Reserve payment access in the United States and regulatory authorization in the United Arab Emirates. The company's pursuit of a Lithuanian banking license signals confidence that the regulatory environment is stabilizing enough to support crypto firms' integration into traditional finance.

How to Verify Crypto Exchange Regulatory Status

As exchanges expand into traditional banking services, users and investors should understand how to verify that a platform is properly licensed. The U.S. regulatory system for crypto exchanges is layered, not centralized; there is no single federal license that covers all crypto exchange activities.

• FinCEN Registration: Check the Financial Crimes Enforcement Network (FinCEN) Money Services Business (MSB) database to confirm a platform is registered for anti-money-laundering compliance. Registration is not an operating license or government endorsement, but it does confirm the exchange has filed required federal forms and maintains AML procedures.
• State Money Transmitter Licenses: Verify state-level authorization through the National Multistate Licensing System and Registry (NMLS) Consumer Access portal. A platform may need separate licenses in multiple states, and exemptions vary by jurisdiction.
• SEC and FINRA Status: For securities trading, check SEC records for national securities exchange registration or alternative trading system (ATS) status. Use FINRA BrokerCheck to verify broker-dealer registration and disciplinary history.
• State-Specific Requirements: New York requires a BitLicense or limited-purpose trust company charter for virtual currency activity. California's Digital Financial Assets Law (DFAL) required licenses by July 1, 2026, for exchanges, custody providers, and transfer services.

Coinbase, for example, publishes money transmitter licenses covering many U.S. jurisdictions and holds both a money transmitter license and a virtual currency business activity license in New York. Kraken reports that Payward Interactive is registered with FinCEN as an MSB and maintains state money transmitter licenses, though it does not currently offer services to residents of Maine or New York.

What Protections Do Licensed Exchanges Actually Provide?

A critical point: regulatory approval does not eliminate trading, custody, or bankruptcy risk. A licensed exchange could still face a hack, liquidity shortage, or operational failure. Crypto balances generally do not receive Federal Deposit Insurance Corporation (FDIC) insurance, which normally applies only to eligible deposits held by insured banks. Securities Investor Protection Corporation (SIPC) protection is also limited; crypto assets that are not securities under the Securities Investor Protection Act (SIPA) are not covered.

The Money Transmission Modernization Act has reduced differences between state systems. By February 2026, 31 states had adopted the model in full or in part, and money transmitters licensed in at least one adopting state accounted for 99 percent of reported money transmission activity. This standardization is expected to make it easier for exchanges to operate across multiple states without maintaining entirely separate compliance frameworks.

Kraken's $22 million victory against Mazars signals that the era of informal regulatory pressure on crypto service providers may be ending. As exchanges pursue banking licenses and integrate deeper into traditional finance, the demand for compliance, legal, and audit professionals with expertise in both crypto and banking regulation continues to grow across U.S. and European markets.