Lufthansa provided a statement to You Have Been Upgraded in German explaining why they shut down the ability to transfer points from other programs into their Miles & More frequent flyer program.
This is why they abruptly terminated the functionality with Marriott, Hyatt, Hilton and others (Google translate):
The background to this is that Miles & More must ensure that its services do not constitute an e-money transaction subject to authorization in the meaning of the German Payment Services Supervision Act (ZAG).
We can not completely rule out that the ability to earn loyalty points from a partner company abroad directly and for a consideration could be considered as an e-money transaction. To make sure that this is impossible, all programs that open up this possibility are suspended.
We can not yet estimate how long our assessment will take. This measure protects both the interests of our participants and those of our partner companies and, last but not least, ours.
Payment initiation services are services that trigger a payment transaction at the customer’s request; the account accessed in this process is not held at the payment initiation service provider, but at another institution.
…Another new addition to the catalogue of payment services is the account information service. This is an online service that provides consolidated information on one or more accounts held by a payment service user with other institutions. Where a supervision requirement under the Payment Services Supervision Act previously only applied if access to customer funds was involved, the mere access to data relating to payment accounts has now been placed under supervision for the first time.
The second sounds like it could include services similar to AwardWallet and Mint.com which are subject to German law. The first, though, is what Lufthansa appears to be concerned with — whether the customer is requesting a ‘payment transaction’ spending points held at another provider (in this case, Marriott, Hilton, etc) to purchase Miles & More miles.
If Germany’s Payment Services Supervision Act applies to ‘buying’ Lufthansa’s miles using points in another program, then they aren’t currently in compliance with the Act, in part because ‘e-payments’ are now regulated as traditional payment services. That means registration, government supervision, and “strong customer authentication” among other requirements.