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Govt Plans Regulator for Skill Gaming Industry Amid Money Laundering Fear

By: Bhaswati Guha Majumder

News18.com

Last Updated: April 19, 2022, 08:30 IST

According to the  KPMG-FICCI 2021 report, India’s gaming market will reach Rs 143 billion ($2.03 billion) by FY22, up from Rs 62 billion in FY21. (Representational Photo)

According to the KPMG-FICCI 2021 report, India’s gaming market will reach Rs 143 billion ($2.03 billion) by FY22, up from Rs 62 billion in FY21. (Representational Photo)

If platforms facilitating online gaming are brought under the purview of the PMLA, gaming operators will be required to follow KYC norms when allowing users, including verification of customers’ identities

To reduce worries of money laundering, uncertainty in the skill gaming sector, the Centre is reportedly considering a proposal to create a regulator to stimulate investment and protect player interests. It is learnt that the industry is also in favour of such a move.

According to a recent report, people familiar with the matter said while the government is considering possibilities for regulating such organisations, it is of the opinion that the task should not be entrusted to any financial sector regulator because the job may not suit its core competency.

It is worth noting that India is one of the world’s top five mobile gaming markets. According to Statista, the market value of the Indian skill gaming sector was around Rs 9,000 crore in FY20, and it was predicted to reach Rs 14,300 crore in FY22.

According to the KPMG-FICCI 2021 report, India’s gaming market will reach Rs 143 billion ($2.03 billion) by FY22, up from Rs 62 billion in FY21. According to recent reports by Sequoia India and Boston Consulting Group, the mobile gaming market in India is expected to grow to $5 billion by 2025, up from $1.5 billion at present.

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Skill Gaming

According to the All India Gaming Federation (AIGF), which was established in May 2016, the online skill gaming industry is one of the fastest-growing sectors in the country.

In simple words, online skill gaming or online games of skill have a pay-to-play format that primarily includes online fantasy sports games, online rummy, casual games and online poker games.

AIGF states: “All member entities offering online games of skill, primarily online fantasy sports games, online rummy, casual games and poker games will be duly incorporated/ registered in India or have a corporate presence in India.”

In the legal section, it says: “Participation in pay-to-play game formats in India will be restricted to users in only those Indian states in which the pay-to-play formats of the games are legal…play-to-pay formats of games of members will not be offered to or targeted at any person less than 18 years old.”

Legislation

However, it is worth noting that recently, three Indian High Courts have had to articulate decisions to strike down recently adopted gaming regulations in their states as unconstitutional.

According to the AIGF, these developments demonstrate that the age-old distinction between games of skill and games of chance remains ambiguous even to the nation’s policymakers, and the response to the question of whether it is legal to play blackjack online or any other game remains perplexing and, surprisingly, obscure.

It also explained that the legality of gaming in India is based on the “Victorian-era Public Gambling Act of 1867”, which prohibits betting and public gaming houses while exempting “games of mere skill" from its jurisdiction.

The AIGF suggested that “a National Gaming Authority can be made and ordered to classify games as per the vast majority of skill or chance in ongoing gameplay and end ambiguity over this difference for good”.

Additionally, Rajya Sabha member Sushil Kumar Modi in an article titled “Why Online Gaming in India Needs Regulation,” said: “This authority could be made liable for the online gaming industry, checking its tasks, forestalling cultural issues, appropriately characterizing games of skill or chance, directing customer assurance and combatting illegality and crime.”

However, as reported earlier, online skill gaming, which attracts millions of customers and involves large sums of money, is likely to be brought under the purview of the Prevention of Money Laundering Act (PMLA) in an effort to prevent money laundering (ML) and terror financing (TL) through such activities.

The Telangana government’s Principal Secretary of IT, Jayesh Rangan, has urged gaming companies to implement robust KYC mechanisms.

Even the finance ministry and the Reserve Bank of India (RBI) have reportedly expressed concerns about the lack of a regulatory framework for stakes-based online gaming.

Companies, which facilitate such activities are formed in the country under the Companies Act or the Limited Liability Partnership Act. Foreign investment in the real money gaming sector is not prohibited, and three companies are currently valued at more than $1 billion.

If platforms that facilitate online gaming with stakes are brought under the purview of the PMLA (Prevention of Money Laundering Act, 2002), gaming operators would be required to follow know your customer (KYC) norms when allowing users, including verification of the customers’ identities.

The need for such a move arose after investigation agencies were unable to track specific money trails due to online skill gaming companies failing to authenticate their customers by verifying the documents required for a KYC check.

For example, an investigation revealed that large sums of money, in lakhs, were transferred using these gaming apps without any KYC checks.

It was also reported that if a transaction exceeds Rs 50,000, gaming companies may be asked to file a Suspicious Transaction Report.

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first published:April 19, 2022, 08:30 IST
last updated:April 19, 2022, 08:30 IST