IT Intermediary Amendment Rules 2023 notified for online gaming industry

MEMBER FIRM OF

The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023 (‘IT Intermediary Amendment Rule 2023’) have been notified on 6 April 2023, following an extended timeline of public consultation on the draft of Information Technology (Intermediary Guidelines and Digital Media Ethics Code) which were published in January 2023.

The summary of the IT Intermediary Amendment Rules 2023 is as under:

Applicability of the amended Rules: The IT Intermediary Amendment Rules 2023 have come into effect from the date of publication in the official gazette i.e 6 April 2023.

However, the diligence obligations under Rules 3 and 4 shall not apply in relation to online games until the expiry of a period of three months from the date on which at least three online gaming self-regulatory bodies have been designated under Rule 4A.

Definitions:

• Definition of online game: Online Game is defined as a game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.
• Definition of online gaming intermediary: An online gaming intermediary is defined as an intermediary that enables the users of its computer resourced to access one or more online game.
• Definition of online real money game: An online real money game is defined as an online game where a user makes a deposit in cash or kind with the expectation of earning winnings on that deposit. The term ‘winnings’ is further explained in the explanation to mean any prize, in cash or kind, which is distributed or intended to be distributed to a user of an online game based on the performance of the user and in accordance with the rules of the game.

• Definition of ‘permissible online game’: A permissible online game is defined as a permissible online real money game or any other online game that is not an online real money game.
• Definition of ‘permissible online real money games: A permissible online real money game is defined as an online real money game verified by an online gaming self-regulatory body under Rule 4A.

Online gaming self-regulatory body: An online gaming self-regulatory body is defined as an entity designated as such under Rule 4A. The insertion of the new Rule 4A provides that the Ministry shall by notification designate multiple online gaming self-regulatory bodies as it may consider necessary for the purpose of verifying an online real money game as a permissible online real money game under the rules.

The entities that fulfil the following criteria can apply to the Ministry for designation as an online gaming self-regulatory body, namely:

• the entity is a company registered under Section 8 of the Companies Act, 2013 (18 of 2013);
• its membership is representative of the gaming industry;
• its members have been offering and promoting online games in a responsible manner;
• its Board of Directors is comprised of individuals of repute and do not have any conflict of interest and possess special knowledge or practical experience suitable for the performance of the functions of such self-regulatory body, and consists of

1. 1. an individual having special knowledge of or practical experience in the online gaming industry;
   2. an individual having experience in promoting the interests of users of online games;
   3. an educationist;
   4. an expert in the field of psychology or mental health or such other relevant field;
   5. an individual having special knowledge of or practical experience in the field of information and communications technology;
   6. an individual who is or has been a member or officer of an organisation dealing with the protection of child rights;
   7. an individual having practical experience in the field of public policy or public administration or law enforcement or public finance or other relevant field, to be nominated by the Ministry; and
   8. such other individuals as may be appointed with the previous approval of the Ministry;
   • its memorandum of association and articles of association contain provisions relating to—

   a. the performance of its functions under the rules, including the redressal of grievances in a manner free from conflict of interest and at arm’s length from its members;

   b. the disclosure and reporting by and accountability of its members in relation to the online games verified by such body;

   c. the clear and relevant criteria, consistent with these rules, for the acceptance and continuation of a person as its member, and for revoking or suspending such membership after giving such person an opportunity of being heard; and

   d. the requirement that the amendment in the memorandum of association and articles of association in relation to any matter referred to in sub-clauses (a), (b) or (c) is carried out with the previous approval of the Ministry; and

   e. the entity has sufficient capacity, including financial capacity, to perform its functions as an online gaming self-regulatory body under these rules.

   Power of the online gaming self-regulatory bodies to declare games as a permissible online real money game:

   • The online gaming self-regulatory bodies shall, upon receipt of applications from members with respect to online real money game, may declare such online real money game as a permissible online real money game.
   • The online gaming self-regulatory bodies will make inquiry and if they deem fit and are satisfied that:

   a. the online real money game does not involve wagering on any outcome;

   b. the online gaming intermediary and such online game is in compliance with the provisions of rules 3 and 4, the provisions of any law relating to the age at which an individual is competent to enter into a contract, and the framework made by the online gaming self-regulatory body under sub-rule (8):

   • An online gaming self-regulatory body shall initially rely upon the information furnished by the applicant for verification of the online real money game and declare such game as a permissible online real money game for a period not exceeding three months.
   • The online gaming self-regulatory body shall endeavour to complete the inquiry within the said period of three months and, upon its completion, either declare the online real money game as a permissible online real money game or inform the applicant in writing with the reasons thereof that such online game does not meet the requirements under these rules.

   Diligence requirements under Rule 3 of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021:

   • Rule 3 of the IT Intermediary Rules that provide for due-diligence to be followed by an intermediary has been amended to include online gaming intermediary within its purview. Thus, online gaming intermediaries must comply with the said rule.
   • Rule 3(b) of the IT intermediary rules have been amended to provide that reasonable efforts shall be made by the intermediary itself, besides the users of the intermediary, not to host, display, upload, modify, publish, transmit, store, update or share any information that is further specified in the rule.
   • Rule 3(b)(ii) has been amended to provide that no online game that causes user harm must be hosted on the intermediary platform. The terms ‘user harm’ and ‘harm’ have been explained to mean any effect which is detrimental to a user or child, as the case maybe.
   • Rule 3(b)(ix) has been substituted to provide that the intermediary shall not host any content that is in the nature of an online game that is not verified as a permissible online game.
   • Rule 3(b)(x) has been inserted to provide that no content that is in the nature of advertisement or surrogate advertisement or promotion of an online game that is not a permissible online game, or of any online gaming intermediary offering such an online game is hosted by the intermediary.
   • Rule 3(f) has been amended to provide that if an online gaming intermediary enables the users to access any permissible online real money game, it must inform its users of such change as soon as possible but not later than 24 hours after the change is effected.
   • Diligence requirement of operating a grievance redressal mechanism shall be applicable on the online gaming intermediaries as well. The online gaming intermediaries must prominently publish on its website, mobile based application or both, the name of the Grievance Officer and his contact details as well as mechanism by which a user or a victim may make complaint against violation of the provisions of this rule as per Rule 3(2).
   • The rules have been amended to explain the term ‘prominently publish’ to mean publishing in a clearly visible manner on the website or app or both.

   Diligence requirements under Rule 4 of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021:

   • The online gaming intermediary is also required to comply with the additional diligence requirements, along with significant social media intermediary, as listed in Rule 4.
   • The rules have further been amended to include the following additional diligence requirements under the said rule:

   a. An online gaming intermediary that enables access to a permissible online real money game must display a demonstrable and visible mark of verification of such online game by an online gaming self-regulatory body on such permissible online real money game;

   b. Any online gaming intermediary that enables access to a permissible online real money game must provide the following information to the users in its terms and conditions/ privacy policy:

   1. 1. 1. the policy related to withdrawal or refund of the deposit made with the expectation of earning winnings, the manner of determination and distribution of such winnings, and the fees and other charges payable by the user;
         2. the KYC procedure followed by it for verifying the identity of the users of such online game;
         3. the measures taken for protection of deposit made by a user for such online game;
         4. the framework referred to in rule 4A, relating to such online game.

         c. An online gaming intermediary shall, before accepting any deposit, identify such user and verify his identity.

         d. It has been clarified that the procedure required to be followed by an entity regulated by the Reserve Bank of India for identification and verification of a customer at the commencement of an account-based relationship shall apply, mutatis mutandis, in identification and verification of the users of such online gaming intermediary.

         e. An online gaming intermediary is not allowed to itself finance by way of credit or enable financing to be offered by third party for the purpose of playing such online game.

         Compliance requirements by the online gaming self-regulatory bodies

         • An online gaming self-regulatory body must publish and maintain an updated list of permissible online real money games verified by them including the details of the applicant, the dates and period of validity of verification and reasons of such verification and details of suspension or revocation of the online real money game on their website.
         • An online gaming self-regulatory body must publish and maintain an updated list of all its members, both present and former as well as the date of their acceptance, corporate identity number and details of suspension or revocation on their website.
         • An online gaming self-regulatory body must prominently publish on its website a framework for verifying an online real money game, which amongst other things mut include the following:

         a. the measures to ensure that such online real money game is not against the interests of sovereignty and integrity of India, security of the State, friendly relations with foreign States and public order;

         b. the safeguards against user harm, including self-harm and psychological harm;

         c. the measures to safeguard children, including measures for parental or access control and classifying online games through age-rating mechanism, based on the nature and type of content; and

         d. the measures to safeguard users against the risk of gaming addiction, financial loss and financial fraud, including repeated warning messages at higher frequency beyond a reasonable duration for a gaming session and provision to enable a user to exclude himself upon user-defined limits being reached for time or money spent.

         • Every online gaming self-regulatory body must publish on its website, the framework for redressal of grievances and the contact details of the Grievance Officer to which an applicant aggrieved by a decision of such body with respect to verification may make a complaint in respect of any matter related to such online real money game or verification.

         The Grievance Officer must acknowledge the same within twenty-four hours and resolve the matter within a period of fifteen days from the date of its receipt.

         Things to ponder:

         • Gap analysis of the current compliance of the industry vis-à-vis the proposed compliance requirements under the Intermediary Rules.
         • Impact of having multiple online gaming self-regulatory bodies.
         • New definition of online real money gaming.
         • Onus on SROs to determine whether a gaming company’s games entail wagering on any outcome and parity on interpretation on what shall be permissible games.
         • Forum shopping amongst SROs and broad guidelines with respect to the same.
         • Strict KYC requirements commensurate to the KYC requirements followed by customers opening a bank account.
         • Interpretation of the term user-harm.
         • Clarity on compliance to be undertaken by non-resident gaming operators.
         • Preparing for the self-regulatory regime.