India’s Real-Money Gaming Regulation: What’s In the Cards for US Companies?

India’s Real-Money Gaming Regulation: What’s In the Cards for US Companies?

India’s Real-Money Gaming Regulation: What’s In the Cards for US Companies?

1000 648 David Hoppe

he online gaming industry in India has enjoyed significant growth in recent years, with real-money gaming emerging as one of its most popular segments. However, this growth has also led to concerns about gambling addiction, money laundering, underage gambling, and lack of consumer protection. In response, the Indian government has introduced new regulations aimed at regulating real-money gaming.

In September 2023, India’s Ministry of Electronics and Information Technology (MeitY) proposed sweeping amendments to the Information Technology Rules of 2021 that prohibit online games involving betting and gambling. The key objectives of these amended rules are to ban games of chance that involve putting real money at risk, establish self-regulatory organizations (SROs) to approve legitimate skill-based games, and introduce regulations around registration, grievance redressal, and Know Your Customer (KYC) norms.

Note that the rules apply only to games of chance. India’s federal government offering and games of skill are constitutionally protected. Violation of these rules could result in an SRO losing its designation. The onus would be on the SROs to determine which games are skill-based.

The Indian gaming market is estimated to grow to $7 billion by 2026, with real-money gaming being a significant contributor. To tap into this high-growth market, Tiger Global, Sequoia Capital, and other venture capital firms have invested in popular Indian fantasy sports platforms like Dream11 and Mobile Premier League. Fantasy cricket, in particular, has witnessed a meteoric rise in India. However, the proposed regulations cast uncertainty on the future of fantasy sports, including cricket.

Main Provisions of the Proposed Regulations

The amended IT rules are expected to reshape the regulatory landscape for real-money gaming in India. It’s important to note that the Indian government’s primary intention behind these rules is to regulate online gambling and create self-regulatory bodies. On one hand, they aim to curb online gaming addiction and unlawful activities through stringent KYC and grievance redressal provisions. On the other hand, the ban on gambling may adversely impact popular and lawful skill-based games like fantasy cricket.

Despite these recent provisions, the legal landscape of gaming in India remains fragmented due to the decentralized nature of its constitution, where states have exclusive power to regulate betting and gambling. As such, the trajectory of India’s real-money gaming law continues to be a subject of interest for stakeholders in the industry. It remains to be seen how these recent changes will shape the future of the online gaming industry in India.

These regulations do not directly impact participation in India-focused real-money games for American gaming companies and individual gamers based in the US. However, the prohibitions may reduce the availability of such gaming options that involve outcomes dependent on sporting events. Fantasy cricket platforms may need to significantly revamp their offerings if they wish to continue operations in compliance with the new rules.

Definition of Games

Recent times have seen a significant shift in India’s legal landscape concerning real-money gaming – an industry that has been the center of numerous disputes and differing interpretations. Notably, the ambiguity surrounding the distinction between skill-based games and real-money games has been a bone of contention in the Indian gaming sphere.

The Supreme Court of India has asserted that certain card games like rummy and specific fantasy games, due to their reliance on strategic thinking and player skill, fall under the category of legal activities. However, the views on this matter diverge considerably across different state courts. For instance, a prominent court in North India ruled that card games such as rummy were predicated on skill and thus deemed legal. In stark contrast, a Southern state court maintained that most card games were anchored in chance and therefore illegal if they involved monetary transactions.

According to these guidelines, only online games that do not involve betting, contain content that could potentially harm children, or cause addiction can be registered or approved. This stipulation implies that most real-money games, including roulette and slots, are not permissible.

This lack of clarity on the definition and qualifying criteria for games creates a gray area for foreign real-money gaming companies, particularly those based in the US, looking to navigate the Indian market. The uncertainty raises questions about whether these entities can be effectively regulated by India’s proposed amendments to real-money regulation.

Know Your Customer

Stricter Know Your Customer (KYC) rules are intended to prevent fraud, money laundering, and financing of terrorism. Proposed by the Reserve Bank of India (RBI), the regulations lay out extensive requirements for gaming companies to verify customer identities before opening accounts or initiating financial relationships.

Specifically, gaming companies must obtain offline verification of Aadhaar cards, India’s national biometric ID system. For customers who cannot be verified offline, gaming companies must use video-based customer identification (V-CIP). The regulations also mandate the authentication of digital signatures for any other officially valid digital documents (OVDs) submitted.

Critics argue these stringent KYC requirements will rob India’s gaming industry of the momentum it has built up by making onboarding new players more difficult. Requiring offline verification of Aadhaar cards presents a significant obstacle, as this data is not readily available to companies.

Advocates, however, say a cooling of the rapidly expanding real-money gaming trend in India is warranted, as the rush to claim market share could tempt platforms to take verification shortcuts, leading to fraud, cheating, underage gambling, and enabling addicted gamblers. The purpose is to ensure gaming companies thoroughly identify and verify customers to prevent misuse of gaming for illegal activities. Stricter KYC is in line with RBI’s mandate to monitor potential financial crimes enabled by the gaming sector’s growth. 

Grievance Redress

Draft online gaming regulations would direct real-money gaming companies to make grievance officer contacts and redressal mechanism details prominently visible on gaming platform homepages and application welcome screens. Companies would need to display the name, contact information, and the process for lodging complaints in a clear and accessible manner on these initial landing pages.

The directive would therefore enable users to easily locate and submit grievances without navigating through obscure links or settings. Some gaming platforms have been accused of concealing grievance systems in hard-to-find sections of their sites and apps. Upfront display of information signals a gaming company’s commitment to complaint resolution. It builds user trust and confidence in the fairness of games and financial transactions.

The draft gaming regulations also outline procedural timelines for grievance redressal. Complaints must be acknowledged within 24 hours and resolved in 30 days. Gaming platforms would need to establish both internal teams and external committees to handle appeals.

Quarterly reporting to the government on complaints and actions taken is also proposed. Along with visible grievance details, timely resolution of user issues would be mandatory under the new rules.

Critics say making grievance contacts identifiable on homepages opens the door to potential overregulation They believe that providing access to redressal systems through site menus should sufficiently meet needs. Some industry stakeholders also point out that compliance will necessitate a significant scale-up of investigative and administrative staff and systems and that the proposed financial penalties for non-compliance could prove devastating.

Conclusion

As one of Asia’s fastest-growing gaming markets, India presents major opportunities for both domestic and foreign real-money gaming platforms. With a market of over 600 million gamers expected by 2027, India offers huge potential. However, complex regulations govern the nascent real-money gaming sector. For US firms to successfully enter India, expert legal guidance is essential.

Consulting with US law firms experienced in advising global gaming clients can enable skillful navigation of India’s burgeoning but complicated real-money gaming market. The opportunity for sustainable growth is tremendous for those with the patience and commitment to enter India the right way.


Gamma Law is a San Francisco-based Web3 firm supporting select clients in complex and cutting-edge business sectors. We provide our clients with the legal counsel and representation they need to succeed in dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.

Author

David Hoppe

All stories by: David Hoppe

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