GERMANY Trends and Developments Contributed by: Wolfgang Richter, gunnercooke GmbH
making power, and whether identifiable bodies exercise discretion over the regulated activity. Specific smart contract scenarios The centrally controlled oracle Consider an otherwise immutable smart contract pro- tocol for token trading that relies, for material trad- ing parameters (fees, matching logic, eligible-asset listing), on an oracle controlled by an identifiable entity. The smart contracts may be self-executing on a conventional blockchain, but they are not autono- mous: their operation depends on parameters sup- plied by the controller. Where the rules are encoded in immutable smart contracts but parameterised by a centrally controlled oracle, the oracle controller is, in substance, managing the rules. The protocol is not provided “without any intermediary” under Recital 22 of MiCAR; the oracle controller is the intermediary. Hence, under both MiCAR and MiFID II, such a pro- tocol remains subject to regulation and requires authorisation – MiCAR CASP authorisation or MiFID II investment firm authorisation. Smart contracts exe- cuting trades on a public blockchain do not exempt a protocol where a critical economic function is centrally controlled. ESMA’s substance-over-form approach in its MiFID II Q&A supports the same conclusion under MiCAR. Two refinements probe the limits. The bounded-dis- cretion oracle allows the controller to set fees within a hard-coded band. Bounds do not eliminate control; they constrain it. A band of 0.01% to 5% leaves effec- tively full pricing discretion; a band of 0.29% to 0.31% may be too narrow to give the controller economically meaningful discretion. Three factors matter: • whether the controller can alter the bounds through upgrade authority; • whether the controller has economic interest in fee outcomes; and • whether other functions are also controlled. Bounded discretion is a mitigating factor, not a defeat- ing one. The ministerial executor removes discretion entirely: the executor mechanically applies determin- istic rules based on observable inputs. A ministerial executor unable to deviate from immutable rules argu-
ably is not “managing” the rules, but merely imple- menting them. The Recital 22 carve-out becomes more plausibly available, though the line is delicate. A further dimension is benchmark regulation. Regu- lation (EU) 2016/1011 (BMR) defines a “benchmark” in Article 3 (1)(3) and Article 3 (1)(6) as any index by reference to which the amount payable under a finan- cial instrument or financial contract is determined, or the value of a financial instrument is determined. The “administrator” (defined in Article 3 (1)(6) as the natu- ral or legal person that has control over the provision of a benchmark) requires authorisation, registration or third-country recognition. An oracle that calculates and publishes a reference value used to determine amounts payable under on-chain financial contracts is, on a textually defensible reading, doing precisely what the BMR was designed to regulate. Price feeds for liquidations, settlement values, redemption rates and yield calculations are all examples where an ora- cle’s published value directly determines a financial outcome. Critically, the BMR is largely indifferent to whether the administrator exercises discretion: the regime applies to mechanical, formula-based benchmark calcula- tion as much as to discretionary panel benchmarks. A ministerial executor that escapes the MiCAR CASP perimeter on the basis that it does not “manage” trad- ing platform rules could potentially fall within the BMR perimeter. The regimes are independent. The analyti- cal migration from MiCAR to BMR is not a regulatory escape but a regime shift: the oracle controller may find itself characterised as a benchmark administrator subject to governance, control, conflicts-of-interest, methodology disclosure and supervision obligations under Title II of the BMR. This applies a control-based test that the ministerial executor argument cannot defeat (because the BMR does not require discretion), capturing exactly the protocols designed to avoid the CASP perimeter through formula-based architecture. The multilateral element Does the protocol operate a multilateral system or a bilateral one? Articles 4 (1)(19), (22) and (23) of MiFID II define regulated markets, MTFs and OTFs as mul- tilateral systems in which multiple third-party buying and selling interests in financial instruments are able
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