A regulatory framework for the online gaming sector

Pahle India Foundation research study recommends a combination of SROs and a statutory regulator

Nirupama Soundararajan and Arindam Goswami | February 18, 2023


#gaming   #technology   #Internet   #policy  
(Image: Ashish Asthana/GN)
(Image: Ashish Asthana/GN)

With the rise in the access to the internet, online gaming has also been making waves. This calls for the setting up of a regulatory framework. While the government has been moving in that direction, Pahle India Foundation (PIF), a not-for-profit policy think tank established in June 2013 by Dr. Rajiv Kumar, former Vice Chairman, NITI Aayog, has published a research study evaluating the regulatory framework for online gaming in India. The study recommends that such a regulatory framework be a combination of SROs and a statutory regulator in the form of a Gaming Commission.

It also recommends responsible gaming tools that are geared towards protecting consumers and minors, framing rules for consumer protection and grievance redressal, and for online gaming platforms to be brought under the PMLA.

Here is the Executive Summary of the report, which can be accessed in full at
https://pahleindia.org/wp-content/uploads/2023/02/Report-on-A-Regulatory-Framework-for-the-Online-Gaming-Sector-1.pdf

A Regulatory Framework for the Online Gaming Sector

Evolution of Online Gaming in India

Digital India was launched in 2015 under the aegis of the Ministry of Electronics and Information Technology (MeitY) with the intent of improving digital infrastructure and connectivity for the people of India. An ecosystem of budding entrepreneurs and a generation of tech-savvy young Indians have emerged because of the low rates of mobile data in India.

The online gaming sector has seen unprecedented growth in India in the last couple of years, partly accentuated by the lockdown on account of the pandemic. A Lumikai Report (2022) stated that the gaming market in India was USD 2.6 billion in FY22 and is expected to hit USD 8.6 billion by 2027. Real Money Games (RMG) revenue accounted for 57 per cent of the market. There were 507 million active gamers in India, of which 120 million were paying users. India accounted for 15 billion games downloads in FY22, which was 17 per cent of global downloads, the highest in the world with 2 billion cumulative Monthly Active Users (MAUs).

The sector is a sunrise sector and can benefit immensely with the right regulatory framework. To this end, appointing MeitY as the nodal ministry is a step in the right direction. New age sectors require a more light-touch regulatory framework that is a combination of principles, rules, and self- regulation, and this is what the regulatory framework for the online gaming sector should aspire towards.

Need for Regulation

The sector suffers from several challenges including perception issues, lack of proper definition, and the constant problem of clubbing games of skill with games of chance/gambling. These uncertainties often impede growth and stymy any kind of potential innovation in the sector. Over the past few years, gaming operators, through their associations, have attempted to put together guidelines for effective consumer protection and responsible gameplay. While the industry has been proactive in putting place these guidelines, the government holds the right to license and monitor all online gaming operators, but it became imperative to develop a more robust and holistic framework of regulation. To this effect, an Inter-ministerial Task Force was set up, to review the sector, and offer suggestions on what such a regulatory framework would encompass.

More recently, on 2nd January, 2023, MeitY published its draft amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (henceforth known as Amendment Rules). The focus of the Amendment Rules is to protect the end consumer, and it also provides the much-needed clarity legitimacy to the sector.

Regulatory Structure for Online Gaming Sector

Good regulation for any industry is determined by the balancing of responsibilities between policymaker, industry, and end consumers. A consumer is best placed to understand their personal circumstances, skill level, and their risk-taking abilities, but requires help from an ethical operator to ensure positive and sustainable levels of play.

Thus, statutory regulation is required to protect consumers as well as the operators. A good regulatory framework must be robust, while ensuring that innovation continues to happen. A regulatory governance structure for the online games of skill sector should begin with an overarching regulation, through which other regulatory bodies such as a gaming commission and self-regulatory organisations (SROs) can be set up.

Need for a Gaming Commission

A central regulation is necessary for this sector. However, what this regulation must do is to define games of skill, allow for the setting up of a gaming commission or regulator, and describe its functions and role in regulating the sector. The said regulator should then be responsible for setting standards, rules, and guidelines that regulate the everyday functioning of the sector. The regulator can also lay down the terms for registering online games of skill operators, granting them licenses, lay down detailed disclosure norms, and conduct compliance audits from time to time.

Creation of Self-Regulatory Organisations (SROs)

It is also important for the industry to regulate itself. The online games of skill sector have three industry associations, namely, Federation of Indian Fantasy Sports (FIFS), E-Gaming Federation (EGF), and All India Gaming Federation (AIGF). Currently, these associations lay down guidelines and rules that their members are expected to follow. This mandate includes best practices such as assistance of vulnerable players, thorough know your customer (KYC) norms to prevent underage play, data protection, and responsible gaming tools, to name a few. The fundamental role of an SRO is to ensure that the law is followed by the industry not just on paper, but also in spirit. In a regulatory framework that is both rule based and principle based, while the regulation or regulator can enforce the rules, it will be the responsibility of the SRO, at the primary level, to enforce the principles.

Mitigating Risks

Good regulations mitigate risks. There are several risks that exist in this sector. Some of these pertain to money laundering concerns, possible addiction, and inappropriate marketing content, amongst others. A rigorous regulatory framework for India will help in mitigating these risks.

The essence of the regulatory framework for the online games of skill sector must be to encourage responsible play. There are broadly five areas that merit regulation. These are around marketing and advertisement, safeguarding minors, providing tools for responsible play, anti-money laundering and financial fraud safeguards, and grievance redressal mechanisms.

Recommendations

New age sectors require a more light-touch regulatory framework that is a combination of principles, rules, and self- regulation. A regulatory structure for the online games of skill sector should be have both SROs and a gaming commission.

Advertisements must not be targeted towards minors or those exhibiting addiction behaviour. Marketing and advertising material should not be misleading. Necessary disclaimers, information, and warnings must be made visible in all forms of marketing and advertising material.

Games of skill operators must ensure that KYC and age verification takes places before any money can be deposited to safeguard minors. New gamers must provide unique identifying details (name, address, date of birth, email address, phone number, and card or bank details) to the operator before being allowed to play with real money. These details must be confirmed and validated by the operator.

Operators must use behavioural monitoring techniques using technology and big data techniques to prevent/detect addiction. New players should go through a responsible playing tutorial before they begin participating in games of skill. All players must set self-determined limits on both deposit and time to begin participating on platforms. There must be an option for the player to set either daily, weekly, monthly, or yearly limit at the player’s discretion.

All online gaming operators must be brought under the ambit of the PMLA. This would ensure certain reporting criteria and audit requirements that will have to be met. Gaming operators must be able to effectively flag suspicious transactions and report these to the concerned authorities. Deposits made to the gaming platform should not be made through either cash or cryptocurrency. High value deposit or withdrawal transactions must be reported to the concerned authority.

All operators should have robust grievance redressal mechanisms in place. Suitable emails and phone numbers for grievances along with details on the procedure with timelines on how complaints will be handled must be published on all platforms. Operators should also have a 24/7 helpline that can help with consumer complaints and enquiry.

Nirupama Soundararajan is Chief Executive Officer, Pahle India Foundation. Arindam Goswami is Research Fellow with the same think-tank.

 

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