I really doubt any bank would buy pounds cash for 210 and sell them for 212. The spread is too small to make business sense as the margin wouldn't cover the effort of transporting cash or physically exchanging it. This news article seems to be comparing tourist cash rates in UK with interbank transfer rates in Iceland - that's not comparing like for like.

Although I agree that it's unlikely one can easily get the "good" rates for ISK listed above, my understanding of the way banks transfer money is that they maintain a reserve of the particular currency and draw from that using current rates, rather than constantly shipping money back and forth to and from a target country as soon as tourists exchange their money. Think about it--UK banks aren't shipping boxloads of US dollars back to American banks so that they can maintain the same level of reserves in Pounds Sterling. They keep those dollars that tourists change and sell them back later on, at whatever the rate might be. Presumably cash is physically transferred only when the reserves breach a certain level--too high or too low, at which point the banks re-equalize. I would imagine the Icelandic exchange places hang on to the dollars or pounds that are exchange at the airport and places in Iceland, exporting them to affiliates abroad rather than exchange them themselves with a bank at the "official" rate.