The Hidden Costs of Setting Up an MSB vs PSP in Canada

Canada’s fintech sector is booming, but choosing between a Money Services Business (MSB) license and the new Payment Service Provider (PSP) regime can be tricky – especially once you factor in all the costs. At first glance, registering as an MSB with FINTRAC is free and straightforward, while PSP registration under the Retail Payments Activities Act (RPAA) is still being rolled out by the Bank of Canada. But the hidden setup costs – from compliance programs and legal fees to technology and banking partnerships – can be significant for both. This article breaks down the lesser-known expenses involved in launching a Canadian MSB versus a PSP, so fintech founders and investors can budget wisely.

Understanding MSB vs PSP in Canada

In Canada, an MSB (Money Services Business) is any firm that deals in currency exchange, money transfers, issuing or redeeming negotiable instruments (like money orders), or virtual currency exchangecomplyfactor.com. MSBs must register federally with FINTRAC (the Canadian AML regulator) and comply with AML/KYC rules under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). There is currently no registration fee for MSBs7baas.com, making MSB setup seem cheap on paper.

A PSP (Payment Service Provider) license, introduced by the Bank of Canada’s Retail Payments Activities Act (RPAA), covers companies that provide retail payment services – e.g. payment processing, account-holding or funds transfers for end users (excluding traditional banks)complyfactor.combankofcanada.ca. PSP registration will become mandatory for many payment businesses starting in late 2025. Unlike MSB registration, the Bank of Canada has not yet published any fee schedule for PSPscomplyfactor.com; an application or ongoing reporting fee is likely but uncertain.

Some fintechs will need both MSB and PSP registration: for example, a company that offers foreign exchange or crypto transfers (MSB activities) and payment processing (PSP activities) must comply with both regimes. Canadian fintechs also need to watch provincial rules: Quebec and British Columbia require local MSB licences (with separate fees), so a business may pay additional provincial licensing costs on top of federal registration.

Official Fees vs Hidden Setup Costs

• No FINTRAC fee, but budget for advisors. While FINTRAC doesn’t charge for MSB registration7baas.com, completing the application often involves legal and consultancy fees. Expect to pay several thousand dollars for professional help (lawyers or compliance specialists) to prepare your business plan, AML policies, and registration documents. 7BaaS’s research suggests realistic first-year budgets for a Canadian MSB (including incorporation and compliance setup) range from US$40k–100k7baas.com.
• Incorporation and corporate setup. Setting up a Canadian corporation is relatively low-cost (roughly CAD $200–$350 for federal incorporation)7baas.com. However, if you form in a specific province or need local registration (e.g. in Quebec), budget extra. 7BaaS offers Company Formation services to handle incorporation and local filings.
• Provincial licensing fees. Unlike FINTRAC, Quebec charges MSBs an initial licence fee per service. Typical costs are CAD $1,000–2,500 for each MSB service category7baas.com (e.g. money transfer, currency exchange). British Columbia also requires an MSB licence (under its Financial Institutions Act), though fees there are generally modest (on the order of a few hundred dollars). These provincial fees are often overlooked, so factor them into your budget if you serve those markets.
• PSP registration fee (TBD). The Bank of Canada will publish a fee structure for PSPs before registrations open. Based on other jurisdictions, there may be an initial application fee and annual dues. For comparison, note that some European “small” EMI/PSP licences charge only a few thousand euros up front, while full authorizations can be €25k or more7baas.com. Keep an eye on Bank of Canada announcements; until the fee schedule is out, treat PSP licensing as a potential cost center.

Compliance Program and Reporting Obligations

Whether you’re an MSB or PSP (or both), compliance requirements drive much of the hidden cost:

• AML/KYC program development. Canadian MSBs must adopt a full anti-money laundering program: appoint a compliance officer, implement written AML/KYC policies, perform risk assessments, and conduct ongoing staff training. Similarly, PSPs will need robust compliance frameworks to meet BoC supervision. Drafting these materials (often with legal input) can cost USD $5k–15k or more7baas.com just to get started. Keeping everything current also means periodic audits and updates, which add annual fees.
• Reporting obligations. MSBs must file numerous reports with FINTRAC on an ongoing basis: Suspicious Transaction Reports (STRs), Large Cash Transaction Reports (LCTRs), Electronic Funds Transfer Reports (EFTRs), and Large Virtual Currency Transaction Reports (LVCTRs) above $10,000, as well as Terrorist Property Reportscomplyfactor.comcomplyfactor.com. Meeting these requires transaction monitoring software, AML screening tools, and staff (or outsourced services) to detect and file reports. A modern AML platform can cost thousands per year, and hiring an MLRO or a compliance analyst may add $50k+ annually to payroll.
• Record-keeping. All MSBs must keep records of transactions and client ID information for at least 5 yearscomplyfactor.com. This often necessitates secure document management systems or data retention solutions. Similarly, future PSPs will need to maintain records under the RPAA. The expenses of data storage, IT infrastructure, and regular audits (to prove compliance) can be easily $10k–20k/year or higher, depending on scale.
• Ongoing professional support. Regulations and interpretations evolve. It’s wise to budget for regulatory consulting or legal retainer fees so you can update policies when laws change. For example, changes in crypto regulation or payment laws may require new filings. 7BaaS offers Compliance & Regulatory Consulting to help fintechs adapt, but such support comes with its own cost, usually on a subscription or per-project basis.

Technology, Partnerships, and Operational Overheads

Beyond direct licensing costs and compliance, setting up payment operations has its own overhead:

• Payment infrastructure and tech stack. A fintech needs systems for money transfers, currency conversion, or wallets. Building or licensing a payments platform (with fraud monitoring, encryption, APIs, etc.) often requires significant development or SaaS fees. Depending on your model, initial tech costs can range from USD $50k to $150k (or more) for a professional-grade solution. Outsourcing solutions (KYC/AML providers, core banking API, virtual account platforms, etc.) adds recurring fees.
• Banking partnerships and trust accounts. Unlike many startups, a financial services business needs banking or custodian relationships. Banks typically require a healthy minimum balance or even collateral for MSB accounts. For PSPs, the RPAA introduces formal safeguarding rules: you must hold customer funds in segregated trust accounts or have equivalent insurance coveragebankofcanada.cabankofcanada.ca. Banks or trust institutions may charge setup or maintenance fees for these specialized accounts, and legal fees are needed to establish valid trust arrangements. (For example, the Bank of Canada expects PSPs to obtain a formal legal opinion confirming that trust arrangementbankofcanada.ca, adding to upfront costs.)
• Currency and FX service costs. If your MSB offers foreign exchange, you’ll incur costs like bank quotes and currency control (e.g. using a CORR account). While not license fees, poor FX rate management can erode margins. Also, if offering cross-border transfers, each banking partner or rails integration (SWIFT, ACH, etc.) brings operational expenses.
• Insurance and capital buffers. Some countries require deposit insurance or minimum capital for PSPs/MSBs (Canada does not mandate a fixed capital for MSBs, but PSPs may need sufficient working capital). Additionally, you will want insurance (cyber liability, fidelity bonds) which can add $5k–$20k/year depending on scope. These are prudent expenses that fintech investors should budget for even if not strictly mandated by the regulator.

Estimating the True Cost

Putting this together, a simple fee-free registration can quickly give way to tens or hundreds of thousands in actual spend. For example, 7BaaS research indicates that in the first year of operation a Canadian MSB might reasonably spend on the order of USD $40k–100k (≈ CAD $50k–130k) covering legal fees, AML setup, and initial operations7baas.com. By contrast, early estimates for operating a PSP (with new safeguarding requirements) are still emerging, but we know compliance burdens (trust accounts, regular reporting, oversight) will add comparable costs.

The bottom line: Watch out for hidden costs beyond the official license application. Things like AML software subscriptions, staff salaries, ongoing legal advice, and banking fees often dwarf the zero-dollar “application fee” that lures many entrepreneurs. Properly budgeting these elements – including extra expenses like Quebec’s MSB fees or trust account setup for PSPs – is critical to avoid surprises.

At 7BaaS, our clients often find that leveraging our MSB Registration Services and Compliance Consulting can reduce the hidden complexity and cost of licensing. Whether you’re budgeting for an MSB or preparing for the PSP regime, detailed planning is key. For in-depth guidance, refer to 7BaaS’s insights on licensing costs and consider expert advice when mapping your launch budget.

Frequently Asked Questions

• What’s the difference between an MSB license and a PSP registration?
  An MSB registration (with FINTRAC) covers activities like currency exchange, money transfers, issuing money orders, and crypto exchange. A PSP license (under Canada’s RPAA) covers retail payment activities (e.g. payment processing, holding payment accounts, or clearing services)complyfactor.com. In practice, MSBs focus on money transfer and FX services, while PSPs focus on payments and account-based transfers.
• Does it cost anything to register as an MSB in Canada?
  No. FINTRAC currently does not charge any fee for MSB registration7baas.com. The main costs are indirect (legal and compliance work). However, remember that provinces like Quebec do charge licensing fees once you start offering services there.
• When do I need to register as a PSP?
  PSP registration becomes mandatory for most Canadian payment businesses starting September 8, 2025bankofcanada.cabankofcanada.ca. If you’re planning to operate beyond that date, you should prepare your application as soon as possible. The Bank of Canada will open its online portal (PSP Connect) for applications well before the deadline.
• Do I need both an MSB and PSP license?
  Possibly. Some activities overlap: for example, if you operate a platform that both transfers money (MSB activity) and holds customer payment accounts (PSP activity), you’d need to comply with both FINTRAC and the RPAA. Notably, exempt entities (banks, credit unions, payroll companies, etc.) do not need PSP registration. It’s crucial to map your services carefully. 7BaaS can assist with this regulatory analysis.
• How can 7BaaS help with all these costs and requirements?
  7BaaS offers end-to-end licensing and compliance support. We handle company setup, regulatory filings, AML program development, and ongoing reporting. Using our marketplace of licensed entities, you can even acquire an existing MSB or PSP license in Canada, saving setup time. Our experts also provide acquisition guidance and tailor strategies to minimize your timeline and investment. In short, we turn the hidden costs of compliance into a clear roadmap.

Take the Next Step: Ready to budget accurately for your Canadian fintech venture? Contact 7BaaS for a free consultation on MSB/PSP licensing, compliance programs, and infrastructure setup. Our expert team will help you navigate these hidden costs and build a compliant, scalable financial service in Canada.