On 2 January 2023, the Ministry of Electronics and Information Technology (IT Ministry) released draft amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (the ‘Rules’) in the public domain for public consultation. The principle objective of the draft regulations is to provide a self-regulator for the online gaming platforms as intermediaries and outline due diligence. The draft has been prepared to ensure that online games should be offered in conformity with Indian laws and that the users of such games be safeguarded against potential harm. The draft amendments have been published a week after ‘The Ministry of Electronics and Information Technology (MeitY)’ was appointed as the nodal ministry for online gaming.
Summary of the draft regulation is as follows:
Coverage:
1.An online game is a game that is offered on the Internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings.
2. Any online game where a user would make a deposit (a cash or in-kind payment to participate in an online game).
3. Winnings (any prize, cash or in kind that is distributed or intended to be distributed to a user based on their performance). It appears that only real money games are covered within the proposed amendments.
4. An Online Gaming Intermediary (OGI) would be an intermediary that offers one or more than one online games.
Registration with a Self-regulatory body (SRB):
1.Each online game offered by OGI will have to be vetted and registered with SRB. To register with a self-regulatory body, OGI is required to ensure the online game is in conformity with laws for the time being in force in India, including any such law that relates to gambling or betting.
2.OGI shall display a demonstrable and visible mark of registration with SRB on its website and mobile application.
3. To register with SRB, the online game must not contain anything that is not in the interest of India’s sovereignty and integrity, security, friendly relations with foreign states, public order or that incites the commission of any cognizable offence.
Additional KYC norms:
1.The draft amendments introduce due diligence requirements under a new Rule 4A to be observed by OGI, which will operate in addition to the ones already observed under the existing Rule 3.
2. These due diligence requirements introduce a KYC procedure to be followed by OGI for registration of the account of a user. Under the proposed Rule 4A(d), OGI is also required to identify the user and verify his identity at the time of commencement of a user account-based relationship for an online game. This KYC procedure is required, under the proposed Rule 4A(d), to be the same as the procedure required of an entity regulated by RBI under directions issued by it for the identification and verification of a customer at the commencement of an account-based relationship.
3. For all users who register from India or use the OGI’s services in India, the OGI has to set up a mechanism so that the users can ‘voluntarily’ verify their accounts and be given a public mark for such verification. This verification can be done even using an active Indian mobile number. Such data cannot be used for any other purpose until and unless the user has expressly consented to such use.
Additional due diligence to be observed:
1. OGI shall inform the users:
- Games offered by OGI and policy in relation to withdrawal or refunds of deposits, how winnings would be determined and distributed, and the fees and other charges that the user might have to pay.
- The risk of financial loss and addiction associated with the online game to be informed to the user.
- KYC procedure to be followed at registration.
- Measures were taken for the protection of the deposit of a user.
- A framework of SRB would work and will have to be informed to the user.
2. Display on its website and app the random generation certificate and a no-bot certificate from a reputed certifying body for each online game it offers.
Appointment of officers and office in India:
1. The following three specific employees shall be appointed:
- Resident Grievance officer
- Resident Chief compliance officer - who shall also be KMP or such other senior employee of OGI, and shall be responsible for ensuring compliance with the Rules.
- Resident nodal contact person (other than chief compliance officer) for 24x7 coordination with law enforcement agencies.
2. OGI shall have a physical contact address in India which is published on its website and mobile-based application.
3. OGI shall implement an appropriate mechanism for the receipt of complaints and set up a grievance redressal mechanism.
Self-regulatory body for online gaming intermediaries:
1. All OGI will have to register with an SRB which will be registered with the IT ministry. This body must either be a section 8 company under the Companies Act, 2013 or a society under the Societies Registration Act, 1860.
2. The IT ministry will take into account the number of members it has, its track record in promoting responsible online gaming, and ensure its independence from the influence of intermediaries while considering the application of the self-regulatory body.
3. The Board of Directors shall, inter-alia, comprise of the following:
- who specialises in public policy, public administration, law enforcement or public finance.
- an independent, eminent person from the fields of online gaming, sports or entertainment, an individual from the fields of psychology, medicine or consumer education, an individual representing online gamers and a person from information communication technology, an individual nominated by the Central Government.
4. An intermediary can be given a membership if it adheres to the due diligence and additional due diligence obligations and has a track record of securing interests referred to in Section 69A of the IT Act while offering online games.
Obligations to be undertaken by the self-regulatory body:
1. In addition to registering all OGI and online games, SRB must also evolve a framework to undertake the test and verify whether the online games conform to such a framework, and update and evolve this framework.
2. This framework must include parameters to adjudge the content of online games and include safeguards against harm, self-harm, safeguarding children, measures to safeguard users against the risk of gaming addiction and financial loss and safeguards against the risk of financial fraud.
The requirements of the above-mentioned rules shall be applicable within a period of three months once the amendments are notified.
The draft amendments are open to consultation in the public domain for two weeks until 17 January 2023. The ministry hopes to notify the amended rules after consultation with three key stakeholders: online gamers, gaming start-ups, and bigger gaming companies and investors.
Our comments:
1. As stated by the Minister of State for IT, any game that allows or permits wagering on its outcome is effectively a no-go area. This has to be carefully taken into consideration while developing and seeking approval for games.
2. However, the draft rules do not provide a distinguishment between games of skill and game of chance. When a similar question was raised to the Minister of State for IT, it was stated (as per the news reports) that “Nobody is going into the underlying question of whether it is a game of skill or game of chance. Nothing that permits you to wager on the outcome of a game shall be permitted. And it is the self-regulatory body that will determine whether it involves wagering or not.”
3. As per the draft regulations, only those OGI can be registered by the SRB which have a physical presence in the country. Thus, OGI will need to have a physical presence in India and comply with relevant laws in India, bringing it at par with the local platform.
4. Presently, it appears that only real money games are covered under the ambit of the draft regulations. However, the Ministry has the necessary powers to declare any online game to be covered within the ambit of the regulations, even if it is not requiring a deposit of monies.
5. KYC regulations presently undertaken by the company shall have to be revisited basis the norms stated in the draft, once adopted. Further, necessary disclosures on the websites, policies, etc. shall have to be undertaken as per the additional due diligence requirements as stated above.
6. It is expected that the regulations should be finalised and notified by early-mid February thereby, paving the way to regularise the online gaming industry.
7. The gaming regulations attempt to boost the confidence of investors on account of greater transparency. However, there may arise challenges for smaller gaming start-ups due to increased compliance to be undertaken to comply with the regulations. While the regulations cast additional responsibilities on OGI, they will enable uniformity in the conduct of the industry thereby, achieve the necessary growth.