Providing the long-awaited regulatory clarity for the online gaming industry, the Union Ministry of Electronics and Information Technology (MeitY) has recently notified the final rules for online gaming in India. The rules have been formulated as an extension to the already existing Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 by introducing additions pertaining to online gaming. Thus, online gaming has now been brought under IT rules pertaining to due diligence obligations that were initially issued for social media intermediaries and streaming platforms.
Key highlights of the amendments are as follows:
1. Definitions/Meaning:
- Online gaming intermediary (OGI): OGI is ‘any intermediary that enables the users of its computer resource to access one or more online games’
- Online Game: It means ‘a game that is offered on the internet and is accessible through a computer resource or an intermediary’
- Online real money game (ORMG): It is a game where the player makes a deposit, in cash or kind, with the expectation of winning. Winning, in this case, need not necessarily be in cash and might as well be in kind.
2. Online gaming self-regulatory body (SRB): The rules have introduced the concept of online gaming SRB, which will act as a body to verify if ORMG is permissible or not. The rules provide for the appointment of multiple online gaming SRBs to verify whether ORMG is a permissible game under these Rules.
Composition of SRB: Such body shall be a Section 8 company under the Companies Act, 2013. It can consist of individuals with knowledge of or practical experience in the online gaming industry, experts in various fields like psychology or mental health, protection of child rights, etc. Power to appoint SRB has been vested upon the Ministry.
Key roles of SRB:
- Publish and maintain on its website, mobile-based application or both, at all times, an updated list of all permissible ORMG that has been verified
- Suspend or revoke the verification of OGI after giving an opportunity of being heard, if satisfied that the ORMG verified by it is not in compliance with the rules
- Publish on its website, mobile-based application or both, a framework for verifying an ORMG, which includes:
- Such games do not go against the sovereignty and integrity of the nation
- Safeguards against harm, including psychological and self-harm
- Measures to safeguard children including mechanisms for parental control and other age-rating mechanisms
- Measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud, etc.
3. Permissibility of online real money game: The amended rules only allow the online game to run in India as permitted by SRB. All online gaming which involves elements of betting and wagering is prohibited under the new rules. Online games that involve wagering on the outcome or does not comply with the due diligence and additional due diligence as prescribed will not be permitted. The SRB may suspend or revoke verification if satisfied that online games verified by it are not in conformity with the rules.
4. Due-diligence obligations for offering ORMG: OGI shall be responsible for performing due diligence on games on its platform. It has been mandated that all online real-money gaming intermediaries must verify the identity of the users before accepting deposits from such a person. The procedure for verification shall be the same as the process followed by Banks and Financial Institutions regulated by RBI. Further, OGI cannot financially aid its users by the way of credit or enable third-party finance for playing ORMG.
5. Obligations of OGI: The permissible OGI shall display the visible mark of verification given by SRB on its platform. The privacy policy and terms of use of an OGI that has permissible ORMG on its platform shall inform the users of:
- Its policy related to the withdrawal and return of deposit made by a user with an expectation of earning winnings;
- How such winning will be determined and distributed
- Determination and distribution of fees or any other charges paid by the user
- Measure is taken for the protection of deposits made by its user
- KYC procedures are followed by it for verifying the identity of the users of such online games, etc.
Further, OGI shall have a physical contact address in India which is published on its website and mobile-based application.
6. Appointment of officers and office in India by OGI:
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 for 24x7 coordination with law enforcement agencies.
OGI shall implement an appropriate mechanism for receipt of the complaint, set up a grievance redressal mechanism and publish a periodic compliance report every month mentioning the details of complaints received and action taken thereon.
7. Obligations concerning online games other than ORMG:
If the Central Government considers it necessary so to do in the interest of the sovereignty and integrity of India, it may, by notification in the Official Gazette, for reasons to be recorded in writing:
- Direct that an intermediary in respect of such online game shall observe, certain specified obligations of due diligence and additional due diligence as if it is a permissible online real money game
- Specify the period within which the online gaming intermediary which enables access to such online games shall observe these obligations
- Apply provisions of verification to online games as they apply to ORMG.
Our comments
1. Any game that allows or permits betting or 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. In view of the aforementioned exclusions, it will be pertinent to see how the legal framework will accommodate this issue in states where gambling is permitted.
3. 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. KYC regulations presently undertaken by the company shall have to be revisited based on the norms stated in the rules. Further, necessary disclosures on the websites, policies etc. shall have to be undertaken as per the additional due diligence requirements as stated above.
5. The self-regulatory authority will publish the names of the permissible OGI on its website. An application for permission can be made within three months from the date of the establishment of three SRBs. The rules have been notified recently in the official gazette on 6 April 2023 and as of today, no SRB has been set up.
6. Challenges for smaller gaming start-ups due to increased compliance shall arise however, on a positive note, the gaming regulations attempt to boost the confidence of the investors and participants on account of greater transparency and providing regulatory recognition to the business.
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