IT Rules changes need a careful relook | The Financial Express

IT Rules changes need a careful relook

Money laundering, fraud and tax evasion—real or virtual—are risks that won’t go away on their own

iIT sector, information technology
There are various positives that need to be lauded in the draft amendments. (IE)

By Pradeep S Mehta and Neelanjana Sharma

The ministry of electronics and information technology (MeitY) recently released draft amendments to the IT Rules, 2021, with the objective of regulating online gaming. The draft amendments rightly adopt a novel co-regulatory approach. It is critical to ensure that this approach works in the favour of all stakeholders. To this end, the draft amendments warrant scrupulous evaluation from a consumer perspective. For instance, the draft amendments provide for the definitions of online game, deposits, winnings and online gaming intermediaries (OGI), but what stands out is that deposits and winnings can be both in cash or in kind. Commitments to deposit, and intentions to distribute winnings, are included in respective definitions. Such broad scope may create confusions and ambiguities in the minds of gamers, leaving the field open for suspicious, fraudulent and exploitative entities.

Further, the draft amendments aim to protect consumers from addiction, financial losses and other harms. This is necessary but not sufficient. The severity of harms may depend on users’ profile, social and economic considerations and prevalent social practices. Consequently, a graded approach might be necessary for classifying harms. Thus, the rules should provide guiding principles for harm to be defined by the Self-Regulatory Body (SRB). This would not only mitigate the risk of over-classification and under-reach but would also empower consumers to keep a check on the SRB’s actions.

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The proposed grievance-redressal mechanism for online gaming is a three-step mechanism consisting of OGI, SRB and Grievance Appellate Committee (GAC). To live up to its promise, the process will need to be consumer-friendly, universally available, and automated for escalation of complaints by aggrieved consumers. Currently, there are no provisions for challenging the decisions of the SRBs or GAC. Any person should be able to ask for more information or raise an appeal, and if unsatisfied with the outcome, should be able to easily escalate the same.

Another issue is the mandatory customer know-your-customer (KYC) requirements by all OGI. This can have unintended consequences as it might exclude genuine players from participating in online games. A graded approach for different requirements at the time of entry, deposit and withdrawal must be explored. Additionally, the Reserve Bank of India has a robust KYC mechanism, including one time password-based e-KYC in the non-face-to-face mode for low-value accounts, for specified duration. It has also launched a Central KYC Records Registry, to enable consumers’ to open multiple account-based relationships through KYC identifiers without unnecessary repeated submission and sharing of sensitive customer information. This can be leveraged in online gaming and other sectors as well.

There are various positives that need to be lauded in the draft amendments. These include compulsory registration of online games and OGIs with an SRB which in turn needs to be registered with MeitY. OGIs and online games need to bear a demonstrable and visible mark of their registration. This will enable consumers to make an informed choice and distinguish legitimate online games and platforms from suspicious ones. Further, the draft amendments give MeitY powers to notify any game as an online game. This can be done for specified periods with reasons recorded in writing on account of addiction, financial harm and other harm to children. Additional reasons are risk of harm to the sovereignty and integrity of India, security of the state, friendly relations with foreign states, or public order. These reasons are broad, vague, provide unreasonable discretion to the executive and are susceptible to misuse, thus should be better defined.

In the ongoing public consultation process, MeitY, through revisions, has considerably expanded the scope of the draft amendments and IT Rules by extension. With the aim to address the nuisance of fake or false information, the government has taken the approach of fact-checking of information through its many agencies, including the Press Information Bureau. This is a relevant issue with far-ranging impact, which requires in-depth deliberation than the one week given to the public. It has the potential to make the government judge in its own cause, accord it unfettered discretion, and neglect independent fact-checking attempts.

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Good regulations should not only try to mitigate risks but also aim to optimise benefits, generate awareness, build capacity and promote innovation. On this line, provisions can be made for recognition of OGIs that are active in compliance and highly-rated by users. Further, to navigate consent fatigue amongst users, OGIs may explore labels to provide the consumers with Most Important Terms and Conditions. There are several examples globally, colour coding of risks being one of them, which can be used to empower consumers into making informed choices.

Also, adding sunset clauses to the proposed rules to review self-regulatory frameworks periodically and ensuring good practices like ex ante cost benefit analysis, would be a step forward to ensure that online gaming regulation is responsible and responsive to market developments, and furthers consumer welfare.

Authors are with CUTS International

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First published on: 24-01-2023 at 04:00 IST