GERMANY Trends and Developments Contributed by: Wolfgang Richter, gunnercooke GmbH
A protocol may be permissionless, while access may require a KYC credential. Governance may be token- based, while voting power remains concentrated in a small number of wallets. The issue is therefore not whether a project uses block- chain technology for issuing and handling tokens, nor whether settlement occurs on-chain. The key question is: who, if anyone, controls the regulated activity? Current EU law status The European compromise The European framework for crypto-asset markets rests on a deliberate yet uneasy compromise. Recital 22 of Regulation (EU) 2023/1114 (MiCAR excludes crypto-asset services “provided in a fully decentral- ised manner without any intermediary” from its scope. MiFID II contains no equivalent carve-out, as its defi- nitions of trading venues and investment firms pre- suppose identifiable legal persons. The framework therefore attempts to achieve two objectives simul- taneously: to respect genuinely decentralised infra- structure not controlled by any person, while bringing identifiable controllers into the regulatory scope. The undefined line and emerging guidance The line between these outcomes is not clearly defined in either regulation. ESMA’s emerging guid- ance under the MiCAR Level 2 mandates, together with the Joint Committee work with the EBA and EIOPA, has addressed the perimeter question but has not yet provided a comprehensive methodology. Competent authorities in several member states have also issued preliminary guidance, including BaFin’s published views on DeFi, AMF analyses of decen- tralised arrangements, and most notably the Danish Finanstilsynet’s 2024 Principles for the Assessment of Decentralisation. These materials are useful indica- tions but do not constitute authoritative pan-European interpretations; ultimately, ESMA’s position and the emerging case law will be decisive. Regulation attaches to identifiable persons The starting point in both regimes is that regulation attaches to identifiable legal persons. Article 3 (1)(15) of MiCAR defines a crypto-asset service provider (CASP) as “a legal person or other undertaking” pro- viding crypto-asset services on a professional basis.
Each regulated service in Article 3 (1)(16) presup- poses a performing person. Recital 22 confirms that fully decentralised services without any intermediary fall outside scope, while adding that the Regulation applies “including when part of such activities or ser- vices is performed in a decentralised manner”. MiFID II is structured similarly but lacks an explicit decen- tralisation carve-out: Articles 4 (1)(19)-(23) define mul- tilateral systems, multilateral trading facilities (MTFs) and organised trading facilities (OTFs) as systems someone operates, and Article 4 (1)(6) on dealing on own account presupposes an investment firm with a balance sheet. The DLT Pilot Regime (Regulation (EU) 2022/858) accommodates DLT-based trading and settlement systems, subject to authorisation of the operator. From contract to methodology EU financial services regulation presupposes an iden- tifiable legal or natural person capable of bearing reg- ulatory obligations and liability. Only legal and natural persons can enter into binding legal relationships; software cannot independently manifest legal intent. A smart contract has no will of its own; it implements the will of whoever controls its parameters, upgrade authority or inputs. The regulatory question reduces to whether there is a legal entity behind the regulated activity, and what specifically does that entity control? A two-stage methodology follows. • The first stage examines technical decentralisa- tion: is the regulated activity provided exclusively through self-executing, autonomous smart con- tracts that are not controlled by any legal entity? This assessment considers both the smart con- tracts themselves (self-execution, autonomy, embedded inherent rights) and the surrounding DLT infrastructure (distribution versus decentralisa- tion, access mechanisms, concentration of deci- sion-making). • The second stage examines decentralised gov- ernance: even where the technical arrangement is not autonomous, can governance nonetheless be characterised as decentralised? This involves assessing whether the arrangement is operated by a partnership or other structure that constitutes a legal person under applicable member state law, whether governance tokens concentrate decision-
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