According to CNET, the My Friend Cayla doll was banned in Germany because it has been classed as an illegal "hidden espionage device":
If you're considering purchasing a connected toy for your offspring, you might want to think twice.
In Germany, regulators have determined that the My Friend Cayla doll could be up to no good, given its potential to steal information about children who play with it. And they say that German parents whose children are in possession of a Cayla doll should destroy the toy.
The Federal Network Agency said in a press release Friday that it has removed Cayla dolls from the market in Germany and will not look to prosecute parents who have purchased one. It does expect, however, that parents who have bought a doll will assume responsibility for destroying it.
Cayla dolls, which incorporate microphones and ask kids questions about themselves and their parents, are classified as "hidden espionage devices," the possession and selling of which are banned by German law.
I did a bit of research about the toy previously when someone asked about the toy, and although it does seem slightly inappropriate to be sending your children's speech to a cloud server, it's not exactly hidden; the device is advertised as 'smart' and connected to the Internet.
Are there other flaws with the doll that made it illegal (hacking, maybe?), or was it banned simply due to the privacy concerns of sending data to the manufacturer?