PERG 2.6 Specified investments: a broad outline

The following paragraphs describe the various specified investments, taking due account of any exclusion that applies.

A deposit is defined in article 5(2) of the Regulated Activities Order. This focuses on a sum of money paid by one person to another on terms that it will be repaid when a specified event occurs (for example, a demand is made).

Certain transactions are excluded. The definition of deposit itself excludes money paid in connection with certain transactions such as advance payments for the provision of goods or services and sums paid to secure the performance of a contract. The circumstances in which payments are excluded from the definition itself are exhaustively stated in article 5(3) of the Regulated Activities Order (Accepting deposits). In addition, there is a separate exclusion in article 9 of the Order (Sums received in consideration for the issue of debt securities) and another in article 9A (Sums received in exchange for electronic money). PERG 3A Q4 contains guidance7 on the exclusion relating to electronic money.

In addition, several separate exclusions focus on the identity of the person paying the money or the person receiving it (or both).

1. (1)

   Payments by certain persons are excluded if they are made by specified persons (such as local authorities or national, or supranational, bodies) or by persons acting in the course of a business consisting wholly or partly of lending money.

2. (2)

   Exclusions apply for sums paid between certain persons who are linked in a specified way (such as group companies or close relatives).

3. (3)

   Exclusions apply to sums received by persons acting for specified purposes. This covers sums received by a practising solicitor acting in the course of his profession or by authorised or exempt persons carrying on one of a specified range of regulated activities and acting within the scope of their permission or exemption.

Electronic money is specified as an investment in article 74A of the Regulated Activities Order, but only when issued by:7

1. (1)

   a full credit institution, a credit union or a municipal bank; or

2. (2)

   a person deemed to have been granted authorisation under regulation 74 of the Electronic Money Regulations; or a person who falls within regulation 76(1) of the Electronic Money Regulations (see PERG 3A, Q30 and 31).

The authorisation and registration requirements for any other person intending to issue electronic money are governed by the Electronic Money Regulations. Guidance on these regulations is available in PERG 3A.7

Contract of insurance is defined to include certain things that might not be considered a contract of insurance at common law. Examples of such additions include capital redemption contracts or contracts to pay annuities on human life. Detailed guidance on identifying a contract of insurance is in PERG 6 (Guidance on the Identification of Contracts of Insurance).

There are two main sorts of contracts of insurance. These are general insurance contracts and long-term insurance contracts. The Regulated Activities Order provides that, in certain specified circumstances, a contract is to be treated as a long-term insurance contract notwithstanding that it contains supplementary provisions that might also be regarded as relating to a general insurance contract (see article 3(3)).

The Regulated Activities Order uses two further terms in relation to contracts of insurance to identify those contracts under which rights are treated as contractually based investments.

1. (1)

   The first term is 'qualifying contracts of insurance' (referred to as life policies in the Handbook). This identifies those long-term insurance contracts under which rights are treated as contractually based investments. This term does not cover long-term insurance contracts which are contracts of reinsurance or, if specified conditions are met, contracts under which benefits are payable only on death or incapacity.

2. (2)

   The second term is 'relevant investments'. This term applies to:

   1. (a)

      contractually based investments, which includes rights under life policies, and rights to or interests in such investments under article 89 of the Regulated Activities Order (Rights to or interests in investments); and

   2. (b)

      rights under contracts of insurance other than life policies (but not rights to or interests in such rights).

   This term is used in connection with the treatment, under various parts of the Regulated Activities Order, of persons carrying on insurance mediation activities (see PERG 5 (Insurance mediation activities) for further guidance on such activities).

Certain arrangements in relation to funeral plans are specifically excluded from being contracts of insurance if they would otherwise be so. The exclusion applies to arrangements that fall within the definition of a funeral plan contract (see PERG 2.6.26 G) as well as arrangements that are excluded from the regulated activity of entering as provider into funeral plan contracts (see PERG 2.8.14 G).

Shares are defined in the Regulated Activities Order as shares or stock in a wide range of entities; that is, any body corporate wherever incorporated and unincorporated bodies formed under the law of a country other than the United Kingdom. They include deferred shares issued by building societies as well as transferable shares in industrial and provident societies, credit unions and equivalent EEA bodies. These shares are transferable and negotiable in a way similar to other shares or stock and are treated as such for the purposes of defining regulated activities. They are specifically mentioned as being within the specified investment category of shares because other types of share issued by these mutual bodies are not transferable and are expressly excluded (see PERG 2.6.10 G).

The following are excluded from the specified investment category of shares. Shares or stock in all open-ended investment companies are excluded from being treated in this particular category (but see PERG 2.6.17 G). Exclusions from this category also apply to shares or stock in the share capital of certain mutuals or in equivalent EEA bodies. This takes out building society or credit union accounts and non-transferable shares in industrial and provident societies. These may nevertheless be specified investments in another category (such as deposits in the case of building society accounts).

Two categories of specified investments relating to debt instruments are dealt with under this heading. They broadly split into private debt and public sector debt.

1. (1)

   The first category of 'instruments creating or acknowledging indebtedness' (defined in article 77 of the Regulated Activities Order and referred to in the Handbook as debentures) expressly refers to a range of instruments such as debentures, bonds and loan stock and contains a catch-all reference to 'any other instrument creating or acknowledging indebtedness.'

2. (2)

   The second category (defined in article 78 of the Regulated Activities Order and referred to in the Handbook as government and public securities) refers to loan stock, bonds and other instruments creating or acknowledging indebtedness which are issued by or on behalf of any government, the assemblies for Scotland, Wales or Northern Ireland, a local authority or an international organisation.

An instrument cannot fall within both categories of specified investments relating to debt instruments. 'Instrument' is defined to include any record whether or not in the form of a document (see article 3(1) of the Regulated Activities Order).

6Alternative finance investment bonds (defined in article 77A of the Regulated Activities Order and referred to in the Handbook as alternative debentures) are a form of Sharia compliant bond (known as sukuk in the plural or sakk in the singular) which are intended to be regulated in an equivalent manner to conventional debt securities, where appropriate. Sukuk arrangements allow assets to be held for the benefit of investors in certificates issued by a company. The benefits may include the payment of a return that is economically equivalent to interest and redemption of the certificates out of the proceeds from the disposal of the assets. Alternative debentures are not limited to those wishing to issue Sharia compliant sukuk.

The arrangements which grant rights under alternative debentures are similar to the tax definition of arrangements relating to alternative finance investment bonds at section 48A of the Finance Act 2005 (see www.opsi.gov.uk/acts/acts2007/ukpga_20070011_en_5#pt3-pb9-l1g53). However the purposes of the two provisions are not the same. One of the objectives of the FCA under the Act is consumer protection. Accordingly, secondary legislation made under the Act, like article 77A of the Regulated Activities Order, is likely to be interpreted by the FCA with consumer protection in mind. This may mean that whilst the arrangements described at section 48A of the Finance Act 2005 and those described at article 77A of the Regulated Activities Order are similar, they are likely to be construed differently by the courts. PERG 2.6.11FG and PERG 2.6.11GG explain the consumer protection features in the definition of alternative debentures in more detail.

The arrangements which grant rights under an alternative debenture arise where:

1. (1)

   the arrangements provide for a person (the bond-holder) to pay a sum of money (the capital) to another (the bond-issuer);

2. (2)

   the arrangements identify assets, or a class of assets, which the bond-issuer will acquire for the purpose of generating income or gains directly or indirectly (the bond assets);

3. (3)

   the arrangements specify a period at the end of which they cease to have effect (the bond term);

4. (4)

   the bond-issuer undertakes under the arrangements:

   1. (a)

      to make a repayment in respect 8of the capital (the redemption payment) to the bond-holder during or at the end of the bond term (whether or not in instalments); and

   2. (b)

      to pay to the bond-holder other payments on one or more occasions during or at the end of the bond term (the additional payments);

5. (5)

   the amount of the additional payments does not exceed an amount which would, at the time at which the bond is issued, be a reasonable commercial return on a loan of the 8capital; and

6. (6)

   the arrangements are a security admitted to:

   1. (a)

      an official list; or

   2. (b)

      trading on a regulated market or on a recognised investment exchange.

Different types of alternative debentures are permitted so that, for example:

1. (1)

   the assets of the arrangement may be acquired before or after it commences;

2. (2)

   the bond-holder may (but need not) be entitled under the arrangements to terminate them, or participate in terminating them before the end of the bond term;

3. (3)

   the return may be fixed, floating or determined in some other way;

4. (4)

   the amount of the redemption payment may (but need not) be subject to reduction in the event of a fall in the value of the bond assets or in the rate of income generated by them.

As these arrangements might amount to a collective investment scheme (see PERG 9.4.2 GG for a broad description) a consequential amendment to the Financial Services and Markets Act 2000 (Collective Investment Scheme) Order 2001 (SI 2001/1062) has been made so that, like conventional bonds, alternative debentures are excluded from the definition of collective investment scheme.

The range of instruments that are caught by the alternative debenture definition have been tightly circumscribed to ensure that only those arrangements that grant, in substance, debt-like returns are captured. This is because arrangements giving rights under an alternative debenture cannot amount to a collective investment scheme (see PERG 2.6.11EG). If other types of investments were covered by the alternative debenture definition this could have the effect of undermining the regime for regulating collective investment schemes, which is primarily aimed at protecting the consumer from investing in unsuitable products. For example, under section 238 of the Act (Restrictions on promotion) an authorised person cannot communicate an invitation or inducement to participate in an unregulated collective investment scheme.

The condition set out at PERG 2.6.11CG (6) is also intended to protect consumers. This provides that alternative debentures must be listed on an official list or traded on a regulated market or recognised investment exchange. This is because there is a risk that alternative debentures could lead to regulatory arbitrage (i.e. the risk that the exclusion from being classified as a collective investment scheme is exploited by instruments not intended to be excluded). Mandatory listing is aimed at ensuring an enhanced level of transparency, reducing the likelihood of regulatory arbitrage.

Certain instruments are excluded from both of the6 categories of specified investments referred to in PERG 2.6.11 G6. These include trade bills, specified banking documents (such as cheques and banknotes though not bills of exchange accepted by a banker) and contracts of insurance. There is a further exclusion from this category of specified investment dealing with public debt for National Savings deposits and products. However, for the purposes of article 78 of the Financial Services and Markets Act (Regulated Activities) Order 2001, this exclusion does not apply to instruments that meet the requirements of PERG 2.6.11CG (1)to (5).6

The category of specified investment of instruments giving entitlements to investments (referred to in the Handbook as warrants) covers warrants and other instruments which confer an entitlement to subscribe for shares, alternative debentures, 6 debentures and government and public securities. This is one of several categories of specified investments that are expressed in terms of the rights they confer in relation to other categories of specified investment. The rights conferred must be rights to 'subscribe' for the relevant investments. This means that they are rights to acquire the investments directly from the issuer of the investments and by way of the issue of new investments (rather than by purchasing investments that have already been issued).

To keep clear distinctions between the different specified investment categories, instruments giving entitlements to investments are not to be regarded as options, futures or contracts for differences.

The specified investment category of certificates representing certain securities covers certificates or other instruments which confer rights in relation to shares and debt securities. It includes depositary receipts.

There is an exclusion for any instrument that would otherwise fall within the specified investment category of units in a collective investment scheme. But the exclusion does not apply where the underlying investments covered by the certificate are issued by the same (non-public sector) issuer or constitute a single issue of public sector debt (such as a single issue of gilts). Certificates or other instruments conferring rights in respect of investments in these two cases continue to be treated as certificates representing certain securities.

The specified investment category of units in a collective investment scheme includes units in a unit trust scheme or authorised contractual scheme10, shares in open-ended investment companies and rights in respect of most limited partnerships and all limited partnership schemes10. Shares in or securities of an open-ended investment company are treated differently from shares in other companies. They are excluded from the specified investment category of shares. This does not mean that they are not investments but simply that they are uniformly treated in the same way as units in other forms of collective investment scheme. The effect is that an open-ended investment company will, in issuing its shares, be subject to the restrictions on promotion of collective investment schemes in section 238 of the Act (rather than to restrictions that apply to other forms of body corporate). For exclusions from the restrictions on the provisions of collective investment schemes, see the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060). Guidance on the meaning of open-ended investment company is in PERG 9 (Meaning of open-ended investment company).

There are no exclusions in the Regulated Activities Order for this specified investment category. This is because 'collective investment scheme' is defined in section 235 of the Act (Collective investment schemes) for the purposes of the Act generally. But there is a separate power to provide for exemptions from that definition and the Treasury have exercised it (see the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 (SI 2001/1062). The result is that units in certain arrangements are excluded from being collective investment schemes (for example, closed-ended bodies corporate, franchise arrangements, timeshare schemes).

Three 13 types of investment are specified here:

1. (1)

   2rights under a stakeholder pension scheme;

   13
2. (2)

   2rights under a personal pension scheme; and13

   13
3. (3)

   rights or interests under a pension scheme which provides safeguarded benefits.13

2A stakeholder pension scheme is defined in section 1 of the Welfare Reform and Pensions Act 1999. Regulations made under that section set out detailed rules under which such schemes will operate (see the Stakeholder Pension Scheme Regulations 2000). Schemes must be registered with The Pensions Regulator.

2A personal pension scheme is, broadly speaking, a pension scheme which is not an occupational pension scheme or a stakeholder pension scheme. That is, a scheme or arrangement that is comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of people:

1. (1)

   on retirement; or

2. (2)

   on having reached a particular age; or

3. (3)

   on termination of service in an employment.

13Under section 48(8) of the Pension Schemes Act 2015 safeguarded benefits means benefits other than:

1. (1)

   money purchase benefits (defined in section 181 of the Pension Schemes Act 1993 and section 176 of the Pension Schemes (Northern Ireland) Act 1993); and

2. (2)

   cash balance benefits (defined in section 75 of the Pension Schemes Act 2015).

1. (1)

   Rights under stakeholder pension schemes and personal pension schemes are specified investments for the purposes of the entire Regulated Activities Order.13

2. (2)

   Rights or interests under a pension scheme which provides safeguarded benefits as defined by section 48(8) of the Pension Schemes Act 2015 are only specified investments for the purposes of article 53E (Advising on conversion or transfer of pension benefits) and not in relation to any other regulated activity.13

3. (3)

   There are no exclusions in the Order.13

9This specified investment comprises emissions allowances that are auctioned as financial instruments or two-day emissions spots (together, emissions auction products).

9It relates only to the regulated activity of bidding in emissions auctions (whereby a bid is received, transmitted and submitted on an auction platform) and captures the two forms of allowance products that may be auctioned under article 4(2) of the auction regulation: a two-day spot or a five-day future.

9For the purposes of the RAO, this specified investment is not a security, contractually-based investment or a relevant investment.

9This specified investment incorporates definitions from other EU directives or regulations which can be summarised as follows:

1. (1)

   Emissions allowance means an allowance as defined in article 3(a) of Directive 2003/87/EC which established the scheme for greenhouse gas emissions allowance trading within the EU. That article provides that an allowance is an allowance to emit one tonne of carbon dioxide equivalent during a specified period, only valid for the purpose of meeting the requirements of Directive 2003/87/EC and only transferable in accordance with the provisions of that directive (emissions allowance).

2. (2)

   A two-day spot is defined by reference to article 3(3) of the auction regulation. That article provides that a two-day spot is an allowance auctioned for delivery at an agreed date no later than the second trading day from the day of the auction (two-day emissions spot).

3. (3)

   A financial instrument is defined as any instrument listed in Section C of Annex I to MiFID. Recital 14 of the auction regulation explains that a two-day spot is not a financial instrument whereas a five-day future is (see PERG 13.4, Q34). A five-day future is defined in article 3(4) of the auction regulation as an allowance auctioned as a financial instrument for delivery at an agreed date no later than the fifth trading day from the day of the auction.

The specified investment category of options comprises:4

1. (1)

   4options to acquire or dispose of securities or contractually based investments, currency and certain precious metals and options to acquire or dispose of such options. Options to buy or sell other types of commodity will only fall within this specified investment category if they are options to buy or sell futures, or options to buy or sell contracts for differences, which are based on other commodities. But options to buy or sell other types of commodity may be contracts for differences (see PERG 2.6.23 G);

2. (2)

   4options to acquire or dispose of other property and falling within paragraphs 5, 6, 7 or 10 of Annex 1 to MiFID (see article 83(2) of the Regulated Activities Order and , Q32 to Q34 for guidance about these instruments), but only where they are options in relation to which a MiFID investment firm or a third country investment firm provides or performs investment services and activities on a professional basis; and

3. (3)

   4options to acquire or dispose of an option to which (2) applies. See article 83(1)(e) of the Regulated Activities Order.

4It follows therefore that options not falling within PERG 2.6.20G (1), for example physically settled options on non-precious metals, such as copper options, will not be options unless they meet the conditions in PERG 2.6.20G (2). Moreover, where the option in question is one to which PERG 2.6.20G (2) applies, it will be an option only in relation to the investment services and activities, or ancillary services where relevant, provided by that person. The same applies in the case of options falling within PERG 2.6.20G (3), for example an option on a physically settled copper option traded on a regulated market.

Futures is the name given to rights under a contract for the sale of a commodity, or of property of any other description, under which delivery is to be made at a future date and at a price agreed on when the contract is made.

The key issue in determining whether something is an investment in this category for the purposes of the Regulated Activities Order is whether the contract is made for investment purposes rather than commercial purposes. Contracts which are made for commercial purposes are excluded from this specified investment category and the Regulated Activities Order contains several tests as to when that is, or is not, the case (some are conclusive, others only indicative).

4As with options, there is an additional category of instruments which are futures only when they are the object of investment services or activities provided or performed by certain persons. These are contracts as described in PERG 2.6.21 G:

1. (1)

   that would not be regarded as having been entered into for investment purposes because they fail one of the tests mentioned in PERG 2.6.22 G;

2. (2)

   that fall within paragraphs 5, 6, 7 or 10 of Annex 1 to MiFID (see PERG 13, Q32 to Q34 for guidance about these derivatives); and

3. (3)

   in relation to which a MiFID investment firm or a third country investment firm provides or performs investment services and activities on a professional basis.

4See article 84(1A)-(1D) of the Regulated Activities Order

4The transposition of MiFID does not have the effect of turning spot or forward foreign exchange contracts into financial instruments where such instruments satisfy the commercial purpose test in article 84(2) of the Regulated Activities Order. In our view, very few instruments are likely to fall within PERG 2.6.22A G in practice, given that this category only applies in the case of instruments not falling within PERG 2.6.22 G. An example of an instrument falling within PERG 2.6.22A G could be rights under a contract for a derivative which provides for physical delivery of a commodity at a future date and which is entered into on a multilateral trading facility.

The specified investment category of contracts for differences covers:

1. (1)

   4rights under contracts for differences;

2. (2)

   4rights under other contracts whose purpose or pretended purpose is to secure a profit or avoid a loss by reference to fluctuations in certain factors; and

3. (3)

   4other derivative contracts (not within (1) or (2)) falling within paragraph 8 of Annex 1 to MiFID, that is derivative instruments for the transfer of credit risk MiFID (see PERG 13, Q30 to Q31 for guidance about these instruments), but only where a MiFID investment firm or a third country investment firm provides or performs investment services and activities on a professional basis.

The factors mentioned in (2) include the value or price of property of any description or an index or any 'other factor designated in the contract'. This catches a wide range of factors.4

4All contracts in this category are cash-settled instruments (as opposed to being settled by way of delivering something other than cash). Many would be unenforceable as gaming contracts were it not for section 412 of the Act (Gaming contracts). Examples of instruments that count as specified investments under this category are spread bets and interest rate swaps.

There are a number of exclusions. These include a case where the parties intend that the profit is to be secured or the loss to be avoided by taking delivery of property. This avoids overlap with the specified investment categories of options and futures. Also excluded are index-linked deposits and rights under certain contracts connected with the National Savings Bank or National Savings products. There is also provision to ensure that the specified investment category of contracts for differences does not include rights under life policies.

Two types of specified investment are relevant. These are the underwriting capacity of a Lloyd's syndicate and a person's membership of a Lloyd's syndicate. There are no exclusions from these specified investment categories.

Rights under a funeral plan contract are the rights to a funeral obtained by a person who pays for the funeral before the death of the person whose funeral it will be.

In accordance with article 61(3)(a) of the Regulated Activities Order, a regulated mortgage contract is a contract which, at the time it is entered into, satisfies the following conditions:

1. (1)

   the contract is one where the lender provides credit to an individual or trustees (the "borrower");

2. (2)

   the obligation of the borrower to repay is secured by a mortgage on land in the EEA;12 and

   12
3. (3)

   at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling.

   12

Detailed guidance on this is set out in PERG 4.4 (Guidance on regulated activities connected with mortgages). However, generally, the definition of regulated mortgage contract does not include certain loans to commercial borrowers, second charge loans by a credit union, exempt consumer buy-to-let mortgage contracts (see PERG 4.4.31G)14and second charge bridging loans (see PERG 4.4.1-A G).12

3In accordance with article 63B(3)(a) of the Regulated Activities Order, a home reversion plan is an arrangement under which, at the time it is entered into:

1. (1)

   a person (the "reversion purchaser") buys all or part of a qualifying interest in land (other than timeshare accommodation) in the United Kingdom from an individual or trustees (the "reversion occupier");

2. (2)

   the reversion occupier (or, where trustees are concerned, an individual who is a beneficiary of the trust), or a related person of either, is entitled, and intends, to use at least 40% of that land as or in connection with a dwelling; and

3. (3)

   the entitlement to occupy ends on the occurrence of any one or more of the following events:

   1. (a)

      the end of a specified period of at least twenty years; or

   2. (b)

      the death of the individual; or

   3. (c)

      the individual enters a care home.

Detailed guidance on this is set out in PERG 14.3 (Guidance on home reversion and home purchase activities).

3In accordance with article 63F(3)(a) of the Regulated Activities Order, a home purchase plan is an arrangement under which, at the time it is entered into:

1. (1)

   a person (the "home purchase provider") buys a qualifying interest in land or an undivided share of a qualifying interest in land (other than timeshare accommodation) in the United Kingdom;

2. (2)

   where an undivided share of a qualifying interest is bought, the interest is held on trust for the home purchase provider and the individual or trustee as beneficial tenants in common;

3. (3)

   an individual or trustees (the "home purchaser") is obliged to buy the interest bought by the home purchase provider over the course of or at the end of a specified period; and

4. (4)

   the home purchaser (or, where trustees are concerned, by an individual who is a beneficiary of the trust), or a related person of either, is entitled, and intends, to use at least 40% of that land as or in connection with a dwelling.

Detailed guidance on this is set out in PERG 14.4 (Guidance on home reversion and home purchase activities).

5In accordance with Article 63J(3)(a) of the Regulated Activities Order, a regulated sale and rent back agreement is an arrangement under which, at the time it is entered into:

1. (1)

   a person (the SRB agreement provider) buys all or part of the qualifying interest in land (other than timeshare accommodation) in the United Kingdom from an individual or trustees (the agreement seller); and

2. (2)

   the agreement seller (if he is an individual) or an individual who is the beneficiary of the trust (if the agreement seller is a trustee), or a related person, is entitled under the arrangement to occupy at least 40% of the land in question as or in connection with a dwelling, and intends to do so;

but excluding any arrangement that is a regulated home reversion plan.

Detailed guidance on this is set out in PERG 14.4A (Activities relating to regulated sale and rent back agreements).

Rights to, or interests in, all the specified investments in PERG 2.6 (except rights to, or interests in, rights under a home finance transaction3) are themselves treated as specified investments. The effect is that, in most cases, an activity carried on in relation to rights or interests derived from any of those investments is also a regulated activity if the activity would be regulated if carried on in relation to the investment itself. The exception is where the rights or interests relate to a pure protection contract or a general insurance contract.

There are several things that are not covered by this category (other than rights to, or interests in, rights under a mortgage contract). Anything that is covered by any other specified investment category is excluded, as are interests under the trusts of an occupational pension scheme. Finally, where a contract is excluded from the scope of the regulated activity of entering as provider into a funeral plan contract (see PERG 2.8.14 G), then rights to, or interests in, the contracts of insurance or interests under the trusts, to which the contracts relate are also excluded from this specified investment category.

11In accordance with article 60B (3) of the Regulated Activities Order, a credit agreement is an agreement between an individual ("A") and any other person ("B") under which B provides A with credit of any amount. In accordance with article 36H (10) of the Regulated Activities Order, rights under an article 36H agreement are also specified investments. The definition of an article 36H agreement is set out in PERG 2.7.7H G.

11In accordance with article 60N(3) of the Regulated Activities Order, a consumer hire agreement is an agreement between a person ("the owner") and an individual ("the hirer") for the bailment or, in Scotland, the hiring, of goods to the hirer which:

1. (1)

   is not a hire-purchase agreement; and

2. (2)

   is capable of subsisting for more than three months.