At the annual OSC Dialogue in Toronto, CEO of the Ontario Securities Commission, Grant Vingoe, warns about the increasingly lawless digital landscape, where scammers have exploited global instability, regulatory gaps, and advanced technology to commit fraud on an industrial scale.

This statement comes at a time when the Canadian regulators have found themselves unable to keep pace with the growing interest in crypto and failing to put a lid on the growing crime rates in the digital asset environment.

In 2023 alone, Canadians reported $648 million in fraud-related losses-a figure regulators fear is just the tip of the iceberg.

Many victims have found themselves in financial ruin after landing themselves in targeted attacks through the myriad of creative methods that scammers have devised; from using deepfakes, fraudulent crypto platforms, to love scams.

In past two years, the OSC has hit with a record number of cases, with the agency receiving a whopping 2,000 cases.

Canadian authorities are trying their best to keep up with the new waves of crypto crimes

The new breed of scam is as sophisticated as it is ruthless. Using generative AI, fraudsters can now create audio and video deepfakes that convincingly mimic the voices and faces of loved ones or trusted contacts.

Victims are lured into sending funds to fake crypto platforms or manipulated through long-term online relationships that end in financial devastation.

In the United States,the North Korean hacker organisation, Lazarus, even resorted to creating fraudulent companies with the motive of embedding malware and getting the hands of the victim's digital asset wallets.

Facing the rising crypto scams, Canadian authorities have been trying their best to keep up with sting operations. One of which is Operation Avalanche, where OSC collaborated with provincial regulators, law enforcement, and blockchain analytics firm Chainalysis.

Over two days in March, officials tracked compromised Ethereum wallets and warned 89 investors that their assets were at risk.

Yet even with such proactive efforts, the anonymous and borderless nature of blockchain transactions makes it nearly impossible to recover funds once they’ve been transferred.

In response to these threats, the OSC is ramping up partnerships with both local and international law enforcement agencies and enhancing its asset-tracing capabilities.

Balancing between regulation and innovation

However, this crackdown comes at a time when the crypto industry is urging caution against overregulation. Coinbase, one of the world’s largest crypto exchanges, recently warned that unclear and heavy-handed rules could drive innovation and legitimate business out of Canada.

Lucas Matheson, Coinbase’s Canadian country director, stressed that without clear, innovation-friendly regulations, Canada risks losing its competitive edge in the global digital asset race.

Canada’s crypto sector is already substantial, with roughly five million Canadians owning digital assets. Surveys show overwhelming support for financial modernization: 86% of Canadians say the system needs reform, 80% find it unfair, and 76% believe it’s outdated.

Yet, stricter rules have already prompted some exchanges to exit the market, largely due to unclear stablecoin policies and a burdensome pre-registration process.

To address these challenges, Coinbase has proposed a comprehensive roadmap for the next federal government, including the creation of a national crypto strategy task force, a government Bitcoin reserve, and regulations to support staking, crypto banking, and AI-powered data centers.

Meanwhile, Canada has taken a significant step forward by approving North America’s first spot Solana ETFs with staking functionality.

Approved by the OSC, these ETFs allow investors to earn staking rewards directly through the fund while holding physical Solana, signaling a willingness to embrace innovation under proper supervision.

Looking ahead, Canada stands at a crossroads. Regulators are intensifying their fight against fraud, but they are also signaling openness to responsible innovation.