Opening Nested Bank Accounts: What They Are and How to Do It Safely

Nested bank accounts have become increasingly relevant in today’s interconnected financial world — especially for financial service providers, payment processors, fintech startups, and international businesses.

What Is a Nested Bank Account?

A nested bank account refers to an account opened by one financial institution (usually a smaller or foreign bank or payment service provider) within another financial institution (often a larger, regulated bank). Essentially, it's "banking inside a bank" — where a smaller institution leverages the infrastructure of a larger one to access the global financial system.

For example, a payment provider in Africa may open a USD-denominated account within a U.S. bank via a nested structure to process global payments.

Why Open a Nested Account?

Businesses and financial service firms often pursue nested accounts for:

• Cross-border payment facilitation

• Multi-currency settlement support

• Access to SWIFT, SEPA, or Fedwire without direct membership

• Reselling banking-as-a-service (BaaS) features

• Liquidity or treasury management across jurisdictions

For fintechs, it allows them to operate like a bank (e.g., issuing IBANs or account numbers to clients) without becoming one — provided compliance frameworks are in place.

Key Components of a Nested Banking Relationship

To successfully open and operate a nested account, the following components are essential:

Component	Description
Host Bank	The larger, regulated institution where the nested account is held
Nested Entity	The payment service provider or foreign financial institution using the account
KYC/AML Framework	Systems to verify customers and prevent illicit activity
Transparency & Reporting	Ongoing communication with the host bank
Regulatory Registration	Often needed with the central bank or financial authority (e.g., FCA, FINTRAC, BOL)

How to Open a Nested Bank Account?

1. Register a Legal Entity

The process usually begins with registering a legal entity, often in a reputable jurisdiction such as the UK, Lithuania, Switzerland, Canada, or Hong Kong — depending on where the nested account will operate.

Make sure the entity's corporate activity is related to financial services, payments, or digital assets.

2. Obtain Required Licensing or Registration

Depending on your jurisdiction and business model, you may need:

• A Money Service Business (MSB) license

• EMI/PSP authorization

• A crypto VASP registration

• A business license in the financial services category

3. Prepare Compliance Documents

Banks offering nested structures will ask for:

• Corporate documents (COI, bylaws)

• Directors/shareholders KYC

• AML/KYC policy

• Transaction monitoring plan

• Client onboarding process

• Legal opinion (in some cases)

4. Choose a Banking Partner That Allows Nested Accounts

Not all banks permit nested accounts. Some banks specialize in serving PSPs or EMIs and provide virtual IBANs or sub-accounts to clients.

Look for:

• Banks in Switzerland, the UK, Lithuania, or offshore-friendly zones

• Institutions offering correspondent accounts

• BaaS providers with white-label infrastructure

If you would like to get an up to date list of banks and BaaS providers that tolerate nested flows, fill out our contact form and we will send it to you by email.

5. Undergo Due Diligence and Integration

Once you submit your application:

• The host bank performs enhanced due diligence (EDD)

• Your compliance documents are reviewed

• The nested account is created, with unique account numbers, currency access, or routing codes

• You’re often integrated via SWIFT, SEPA, IBAN issuance, or even API access

Use Cases for Nested Accounts

• Fintech Platforms offering wallet balances or virtual IBANs to clients

• Crypto PSPs collecting stablecoin off-ramps and converting them to fiat

• Forex Brokers receiving client funds in various currencies

• Investment advisors pooling funds before execution

• Remittance startups simplifying global payments

• Private Banks adding payment rails and liquidity providers

Risks and Compliance Challenges

Nested banking faces increasing scrutiny. Some challenges include:

• De-risking: Banks may terminate nested accounts without warning if they feel uncomfortable.

• Regulatory risk: Non-compliance may lead to loss of access to key banking rails.

• Transaction monitoring: Expect requests for beneficiary info, invoices, and documentation.

Tips for a Successful Nested Account Setup

• Start with small volumes to build trust

• Be 100% transparent about clients and flows

• Maintain updated compliance documentation

• Choose host banks familiar with your niche (e.g., crypto, payments)

• Consider BaaS platforms offering hosted compliance

FAQs – Nested Banking Explained

Is it legal to use a nested bank account?

Yes — when used compliantly with host bank approval and proper registration.

Can I open nested accounts for crypto-related activity?

Yes, but this is high-risk. You must be transparent and use a bank open to VASP activity.

Do I need a license to open a nested account?

Often yes — at minimum, a PSP, EMI, or MSB license or registration is required.

Can I issue IBANs or bank details to clients?

Yes, if your banking partner supports it. This is common in BaaS environments.

Which countries are best for opening nested accounts?

UK, Lithuania, Switzerland, U.S., and Canada are known hubs — depending on your activity and risk tolerance.

Conclusion

Opening a nested bank account can be a powerful way for fintech companies, payment providers, or crypto service businesses to scale without becoming a full bank.