Several issues with this
a) You cannot add / switch materia. This becomes a problem if for example you want to use mega-all, KOTR, ZB, and all that stuff. How would you justify having someone have that at the start of the game? The same goes for a LOT of early-game broken but late-game essentials like 2x/4x cut, morph, full-cure, shield, ultima, most summon ( odin anyone ) and so on
b) it can end up pretty difficult. At some points you have only 1 variable member and if you, lets say, haven't used the 2nd locked one much, he'll be really weak because no materia growth as you can't change them. ever. What would you even do with all the materia that are found? would be pretty pointless to let them just sit there and then rot in the locked menu
This also makes double / triple weapons extremely overpowered. As there is, as far as I know, no script command to place specific materia in weapon slots, you need to give every weapon at least X slots ( X being the final amount of materia you have on said characters weapon )
Same problem persists with armor. They'd all need X slots from the beginning.
I don't even need to tell you how much of a problem I'd be if only Yuffie had "steal", right? No steal up to Junon? lol no thank you.
Or how overpowered it would be if each member had 16 materia at start.
c) buying / selling materia is entirely gone.
d) Yuffie wutai event anyone? That removes your materia and puts it randomly back. Unless you manage to stop her from doing that or find a way to put the correct materia back, this will break your whole game. And not being able to do Wutai? no thanks you again.