According to reports, the City watchdog abandoned the plans because they would have cost the industry around £170m, due to time requirements and the type of IT systems needed.
A report by PwC is believed to have led the FSA to rethink the strategy. According to the FT the report showed that such a strategy would have resulted in millions of people being asked to produce forms of identity to prove who they are, provoking a backlash from the industry, over the growing cost of regulations.
The decision has been welcomed by the financial services industry as pragmatic. It claims the real issue is on the clearing banking side of the industry.
The original proposals, which would have affected banks, independent financial advisers and building societies which would have meant customers verifying their identities with passports or other forms of identity.
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