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By Andy McCue, 24 July 2003 12:51

NEWS Mandatory regulation for financial firms aimed at cracking down on money laundering and terrorist funding will not now be introduced, after a report by the industry watchdog found it would be too costly. The Financial Services Authority commissioned PricewaterhouseCoopers to examine the cost-benefit implications of forcing all regulated companies to implement measures to verify the identity of all clients and customers. This was on the back of the Know Your Customer campaign launched by Abbey National, Barclays, HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland last year to verify all their account holders, which will rely heavily on the use of automated data-matching and artificial intelligence technology. But Carol Sergeant, managing director at the FSA, said in a statement that, based on the conclusions of the PwC report, the cost of complying with such measures would outweigh the benefits for some firms, and that each should assess their own risk. "We needed to be satisfied that any new general regulatory obligation would be proportionate to the benefits and would not be detrimental to the industry’s competitiveness, nor unduly inconvenience customers. This was a difficult decision but given the findings, across the whole of the regulated sector, of the cost-benefit analysis, we could not be satisfied that a mandatory approach would be justified," she said. The FSA stressed that the decision does not absolve financial institutions from existing anti-money laundering checks and responsibilities. Sergeant said: “The senior management of each firm must satisfy itself that its systems are appropriate for dealing with money-laundering risks arising if they have not identified existing customers adequately. For a number of firms the right approach will be for them to conduct a risk-based review of all or some of their existing customers." Barclays bank said it will continue with its own plans to verify customer accounts, using technology to minimise inconvenience where possible. A spokesman told silicon.com: "We will continue with our programme of identifying customers, as we remain committed both to the fight against financial crime and fulfilling our regulatory obligations. Wherever possible we are identifying customers through our own records, but occasionally we need to contact a customer to ask for further ID - but it would be a rare occurrence."