Securities regulators ramp up use of investor alerts to flag concerns

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The number of investor warnings sent out by market watchdogs across Canada has nearly tripled over the past year, according to a new report, as authorities have monitored a dramatic rise in consumer losses from crypto-related investment scams.

Between July 1, 2022, and June 30, 2023, members of the Canadian Securities Administrators – an umbrella group for Canada’s provincial and territorial securities regulators – issued a total of 758 investor alerts, cautions and warnings, according to the CSA Year in Review report published Thursday. More than half of them – 422 – were related to crypto.

The total represents a 221-per-cent increase over the previous year, when 236 alerts were issued. Part of that increase can be attributed to the CSA being more pro-active about keeping the public informed about potential nefarious actors in the marketplace, said Stan Magidson, CSA chair and chief executive officer of the Alberta Securities Commission.

“Sometimes your best defence is a good offence,” Mr. Magidson said in an interview from Calgary. “We are really much more now pro-actively putting out alerts where we are seeing problems with certain platforms, players or folks on social media that are clearly raising red flags for us. We are better off when we see a problem to go out early.”

In 2020, a total of $33.5-million was reported as lost to investment scams, according to data from the Canadian Anti-Fraud Centre. In 2022, the total was $305.4-million – a nearly tenfold increase in just above two years.

“And those are just from reports received by the CAFC as we estimate that only 5 to 10 per cent of victims actually report,” said Jeff Horncastle, a spokesperson for the national police service based in North Bay, Ont., which is jointly operated by the Royal Canadian Mounted Police, Ontario Provincial Police and the Competition Bureau of Canada. “Those numbers are probably a drop in the bucket, because a lot of these scams go unreported.”

Well over half of investment scam losses over the past two years have been cryptocurrency-related scams, Mr. Horncastle added, citing CAFC estimates.

Regulators have been increasingly cracking down on crypto trading platforms operating in Canada without a licence. Earlier this year, the CSA launched and completed a crypto investigation project, which resulted in “certain platforms deciding to either cease operating in Canada by restricting access for Canadian users, or begin engaging with CSA members to bring their operations into compliance,” the Year in Review report says.

Among the most notable departures was Binance Holdings Ltd., widely believed to be the world’s largest crypto trading firm, which withdrew from Canada in May after citing an “untenable” regulatory environment. Rival crypto exchanges, such as Coinbase, adopted a sharply contrasting view to the new regime, choosing to hire more Canadian staff and expand Canadian operations after the CSA crackdown.

“We have been very focused at CSA in trying to develop appropriate guardrails for a continuing crypto market in the country, but it is not without its challenges,” Mr. Magidson said.

Canadian regulators have been attempting to take an “agile” approach to crypto, he said, though part of the challenge lies in the sheer sophistication of scammers in recent years.

“One of the things we are seeing is actually sites that are being put up that are fakes, but they are representing themselves to be credible organizations. It is a mirror of what you would expect to see, but it is all a fraud.”

Mr. Horncastle said many crypto-related scams have also adopted the latest search-engine-optimization technologies in order to attract potential victims.

“If you go to your search engine and type in cryptocurrency investment, chances are the first five to 10 results that come up are probably going to be fraudulent,” he said.

Jean-Paul Bureaud, executive director of the Canadian Foundation for Advancement of Investor Rights, or FAIR Canada, said issuing more alerts about potential investment scams is a step in the right direction, but that ultimately more needs to be done to ensure those warnings actually reach individual investors.

“We know just from anecdotal evidence and some of the discussions we have with everyday Canadian investors, I can’t tell you how many of them are actually aware of these investor alerts,” he said. “Financial advisers, do-it-yourself trading platforms, it is important for them to also take note of these investor alerts.”