This alert highlights the significant pronouncements and related guidance issued by the Authorities regarding the import, materiality, scope and assessment of FSPs’ advice, disclosure and record-keeping obligations in terms of FAIS Code and what this could mean in the context of replacement policies.

The regulatory framework governing replacement policies

Replacement policy advice is primarily regulated by the FAIS Act and the FAIS Code (FAIS Regulatory Framework), read together with the Policyholder Protection Rules applicable to insurers (PPR). A “replacement policy” arises where a FSP recommends that a policyholder terminate or vary an existing policy in order to take out a new policy, whether with the same or a different insurer. As this process may materially affect the policyholder’s rights and benefits, the FAIS Regulatory Framework imposes heightened disclosure, advice and record-keeping obligations on FSPs, which operates in tandem with the Insurance Act 18 of 2017 by imposing complementary and/or ‘dovetailed’ duties on FSPs and insurers respectively to ensure policyholder protection. 

With the aim of ensuring that policyholders fully understand the risks associated with a particular replacement policy recommended by an FSP and are able to provide informed consent in relation thereto, the FAIS Code builds in specific safeguards via the imposition of mandatory compliance obligations on FSPs, including but not limited to, the obligation to:

• Act honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.
• Provide policyholders with appropriate and adequate information, including disclosure of all material risks, obligations and limitations associated with a financial product.
• Disclose not only the actual and potential financial implications of the replacement policy, including costs and front-end charges, but also the differences in cover (including exclusions, waiting periods, excesses and retroactive dates) and any circumstances in which benefits may not be provided under the replacement policy.
• Ensure that the advice given is appropriate to each policyholder’s specific financial needs and objectives, based on accurate and complete information.
• Provide a documented comparison schedule of the terminated product and the replacement product, including other requisite information.
• Maintain a proper record of advice provided to the policyholder.

In addition to the FAIS Code, PPR Rule 19 introduces further safeguards via the imposition of obligations on insurers to ensure appropriate procedures are established to identify replacement transactions and obtain confirmation that appropriate disclosure and advice processes were followed by FSPs when attending to a replacement transaction. If an FSP fails to disclose that a transaction constitutes a replacement policy, this may trigger reporting obligations and potential scrutiny by the FAIS Ombud and/or other supervisory authorities depending on the nature and materiality of the FSP’s (mis)conduct in question. It should, however, be noted that in certain instances, it is possible for an insurer to be exempted from the provisions of PPR Rule 19.

Practical lessons from FAIS Ombud settled complaints and FST decisions

Recent FAIS Ombud settled complaints and FST decisions illustrate the frequency and practical consequences/implications of FSPs’ non-compliance with FAIS Code obligations and what this could mean in the context of replacement policies.

The FAIS Ombud has found that FSPs breached their respective FAIS Code obligations where FSPs had failed to, inter alia:

• exercise reasonable care, skill and diligence, and in the interests of the policyholder when providing financial services;
• explain the benefits that would be lost upon cancellation of the existing policy and/or failed to disclose exclusions, waiting periods and/or any restrictions in respect of a recommended policy, to the policyholder;
• properly assess the policyholder’s actual circumstances and needs;
• maintain an adequate and consistent record of advice; and/or
• produce documentary proof that the required disclosures had been made and that the policyholder properly understood those disclosures.

These findings are drawn from various settled complaints by the FAIS Ombud, namely: FAIS-89422-24/25 GP 4,

FAIS-79818-24/25 KZ 1;

FAIS-50254-23/24 WC 6; and

FAIS-93742-24/25 WC 4.

These principles were reinforced in the recent 2026 FST decision of Dube v Accolade Financial Planning Services (Pty) Ltd (FSP57/2025) wherein the FST pronounced upon FSPs’ FAIS Code obligations to:

• act with honesty and integrity by not acting with commission-driven intent or by deliberately misrepresenting a client’s income;
• obtain appropriate information about a client’s financial situation and ensure affordability by, for example, obtaining proof of income; and
• conduct an analysis based on that information before providing advice to ensure sustainability in the policy.

Given the Authorities’ regulatory spotlight focusing on compliance breaches, FSPs are advised to take heed of the Authorities’ cautionary pronouncements issued in terms of the recent FST decisions and FAIS Ombud’s settled complaints to ensure compliance with their mandatory FAIS Code compliance obligations.