Specific forms of digitised financial innovation have been the subject of several chapters in this volume: Chapter 2 studied the regulation of high-frequency trading and Chapter 3 the role of clearing houses and central depositories in derivatives trading. In this chapter, we examine technological innovation more broadly and in its own right, considering its impact on European regulatory structures in recent years. How does technological innovation, or 'Fintech', 1 in major financial markets-currencies, payment systems, capital markets, alternative intermediaries and insurance-impact upon regulation? The dynamic features of financial markets and the innovation of complex financial products and services based on new technologies and business models present regulators with significant challenges. Specifically, how can they effectively scrutinise unprecedentedly large volumes of market data? Is 'Regtech', an instrument developed by private actors, able to ensure compliance with public regulation? Does an alternative approach which institutionalises public-private cooperation offer answers to new regulatory challenges? New financial technologies and activities often do not fall within the purview of established regulatory regimes, leading to a situation where regulators are playing catch-up with the private sector. At the very least, this necessitates further engagement between public and private actors; at most, it calls for sweeping reforms to regulatory rules and strategies. While it is routine for regulators to encounter asymmetric information problems in interactions with firms (Besanko and Sappington 2001), these are acute in sectors such as finance where disruptive innovation can lead to a state of 'Knightian uncertainty', as was demonstrated by the most recent financial crisis itself (Nelson and Katzenstein 2014). A key lesson drawn from the 2008 crisis was that if

Banking regulation and supervision have a key role to play in realizing the EU’s climate change objectives. In this article, we analyse the EU-level initiatives currently underway to decarbonize the banking system, in particular with regard to the microprudential rulebook. We document how regulators work hard to fit climate policy into the existing objectives of the microprudential framework. We also assess whether these efforts are likely to be successful by sketching two ways forward, which involve their own distinct hazards. The first is a ‘Deferential Transition’, which sees policymakers rely on banks and external rating providers to develop adequate internal risk management procedures while taking a largely agnostic approach as to what methodologies are appropriate. If this is the way forward, we see a number of risks: banks have a clear incentive to downplay risk, while large financial institutions gain a significant advantage and the division of responsibility between banks and supervisors becomes blurred. We also outline the scenario of a ‘Guided Transition’, in which regulators provide fine-grained guidance on the future that banks should anticipate. Although we broadly think this approach is the more effective route to greening EU banking, we also see challenges of an entirely different sort: regulators will unavoidably face political choices and EU lawmakers will need to consider issues of legality, legitimacy, and accountability. In this regard, we argue, the EU faces a risky bet.

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