Why Icelandic companies struggle with EU banking

Introduction

For many Icelandic businesses, expanding into the European market is a natural step in their growth strategy. Thanks to Iceland’s close economic integration with Europe, companies can reach customers across multiple jurisdictions and benefit from a business environment closely aligned with European standards.

However, entering the European market often involves more than simply finding customers or establishing commercial relationships. Businesses may encounter practical challenges when seeking a European business bank account, connecting payment providers, or meeting the compliance requirements of financial institutions. As a result, what initially appears to be a straightforward expansion can become a complex exercise in corporate structuring and banking readiness.

Understanding these challenges in advance can help businesses avoid delays, reduce onboarding risks, and build a structure that supports long-term operations across the European market.

Iceland’s integration with the European market

Iceland is not a member state of the European Union (“EU”). However, together with Norway and Liechtenstein, it participates in the European Economic Area (“EEA”) under the Agreement on the European Economic Area. The EEA framework extends key elements of the EU internal market to these countries, including the free movement of goods, persons, services, and capital. As a result, Icelandic businesses benefit from broad access to the EU market and may conduct cross-border activities within the EEA under a harmonized regulatory framework.

Iceland also participates in the Single Euro Payments Area (“SEPA”), which facilitates euro-denominated payments across participating countries through a harmonized payment framework. However, SEPA primarily concerns the execution of payments rather than access to banking services. While it enables businesses to send and receive euro payments efficiently, it does not establish an automatic right for a company to open an Icelandic SEPA account with a particular financial institution.

While Iceland participates in the EEA and benefits from access to the EU internal market, this framework does not create a corresponding obligation for EU financial institutions to provide banking services to Icelandic companies. Securing an EEA company bank account remains subject to each financial institution’s onboarding, risk assessment, and compliance procedures.

Why access to the EU market does not automatically mean access to EU banking

The answer largely lies in the way financial institutions assess prospective customers. When providing EU banking services to non-EU company entities, banks are generally required to understand who owns and controls the company, the nature of its activities, the purpose of the account, and the risks associated with the proposed relationship before establishing a business relationship. Consequently, the decision to onboard a corporate client is typically based on a broader risk assessment rather than on the company’s place of incorporation alone.

Regulatory compliance and EBA frameworks

A key reason why access to EU banking services may differ from access to the EU market lies in the regulatory obligations imposed on financial institutions. The European Banking Authority (“EBA”), in its Final Report on amending Guidelines on ML/TF risk factors (“Final Report”), emphasizes that the risk of money laundering and terrorist financing may vary between customers and business relationships and that financial institutions are required to identify and assess those risks in order to determine how they should be managed.

This risk-based approach is a core element of the EU AML/CFT framework, meaning that banks are expected to assess each customer on its own merits rather than relying solely on the customer’s jurisdiction of incorporation.

As part of this assessment, banks are expected to obtain sufficient information to understand the nature of a customer’s business and the risks associated with the proposed relationship. The Final Report further notes that institutions should seek to understand the background and purpose of unusual transactions, including the source and destination of funds where appropriate. Consequently, onboarding decisions are typically driven by the bank’s assessment of customer risk and its regulatory obligations, rather than by a company’s participation in frameworks such as the EEA or SEPA.

Consequently, for those seeking an Icelandic company bank account, Europe often presents additional information requests, enhanced due diligence procedures, or longer onboarding processes. As a result, successful onboarding will often depend on a company’s ability to demonstrate a transparent ownership structure, a clear business model, and a well-documented rationale for the proposed banking relationship.

Practical challenges frequently encountered by Icelandic businesses

In practice, Icelandic businesses seeking access to EU banking services may encounter additional scrutiny where financial institutions perceive elevated compliance or onboarding risks.

Primary operational risk factors

When corporate entities outside the direct EU border apply for financial infrastructure, compliance teams review their specific business footprints. The existence of one or more of these factors does not necessarily prevent successful onboarding. However, they may result in additional information requests, longer onboarding timeframes, or enhanced due diligence measures by the financial institution.

Technical and asset-specific roadblocks

The most common friction points during the review phase include:

The absence of a demonstrable operational presence within the EU;
Limited business activity or transaction history within the EU market;
Complex ownership or group structures;
Business models involving cross-border payment flows;
Activities involving virtual assets, crypto-assets, or other sectors subject to enhanced regulatory scrutiny;
Difficulties in demonstrating a clear commercial rationale for maintaining a bank account for a foreign company in Europe.

Preparing for successful bank onboarding

While there is no guaranteed route to obtaining banking services in the EU, navigating business banking for Icelandic companies becomes easier when businesses improve their onboarding prospects by ensuring that key corporate information is readily available and clearly documented. In practice, financial institutions will often seek to understand the company’s ownership structure, business model, expected transaction flows, and the commercial rationale for maintaining an EU banking relationship.

Core transparency requirements

In particular, businesses should be prepared to demonstrate:

A transparent ownership and control structure, including information on beneficial owners;
A clearly documented source of funds and source of wealth, where relevant;
A well-defined commercial rationale for seeking access to EU banking services and the expected use of the account.

In practice, many Icelandic businesses looking to open an EU bank account for Icelandic company activities benefit from establishing a demonstrable operational connection with the EU, such as maintaining local customers, business partners, personnel, offices, or commercial operations within the Union. While such measures do not guarantee successful onboarding, they may help financial institutions understand the commercial rationale for the proposed banking relationship and assess the associated risks.

Businesses that can provide this information from the outset and clearly explain their cross-border activities are generally better positioned to navigate onboarding procedures efficiently. Taking these steps at an early stage can help reduce delays and facilitate discussions with prospective banking partners, whether applying for a traditional bank or an EMI account for Icelandic company operations.

Conclusion

The challenges that Icelandic businesses may encounter when seeking access to EU banking services should not be understood as a consequence of Iceland’s status outside the EU or as a limitation of its participation in the EEA or SEPA frameworks. Rather, they stem from the regulatory obligations imposed on financial institutions, which are required to assess and manage customer risk before establishing a business relationship.

Importantly, these requirements are not unique to Icelandic companies. The same AML/CFT obligations apply throughout the EU and require banks to conduct customer due diligence, assess beneficial ownership structures, understand business activities, and monitor customer relationships on an ongoing basis.

As a result, access to EU banking services is ultimately determined not by a company’s jurisdiction of incorporation, but by its ability to satisfy the compliance and risk-assessment requirements of the financial institution concerned. As a result, obtaining an EU bank account for Icelandic company operations is ultimately determined not by a company’s jurisdiction of incorporation, but by its ability to satisfy the compliance and risk-assessment requirements of the financial institution concerned.

For Icelandic businesses, the key consideration is therefore not whether they are entitled to participate in the European market, but whether they are adequately prepared to demonstrate transparency, legitimacy, and a clear commercial rationale when engaging with EU banking institutions.

At Manimama Law Firm

At Manimama Law Firm, we assist businesses in navigating this regulatory environment. We support documentation, manage application processes, and develop long-term compliance strategies for crypto-related businesses.