Maria Lucia Passador, an Assistant Professor of Corporate Law and Financial Markets Regulation at the University of Bocconi, presents a compelling argument in her forthcoming article in the American Journal of Comparative Law, challenging the prevailing narrative surrounding "simplification" in modern financial regulation. Her research, detailed in her paper titled "Governing Complexity: Maria Lucia Passador’s Reframing of Financial Regulation Simplification," posits that the widely sought-after goal of simplification is often fundamentally misunderstood, leading to misguided regulatory approaches. Instead of merely reducing rules, Passador contends that effective simplification lies in the sophisticated governance of inherent complexity.
The Illusion of Simplification as Reduction
The contemporary landscape of financial regulation is frequently characterized by a pervasive call for "simplification." Legislators, regulators, industry participants, investors, and commentators alike champion this objective, promising reduced burdens and a more navigable system. However, Passador’s analysis, drawing from an extensive examination of regulatory frameworks in the European Union, the United States, and the United Kingdom, reveals that this pursuit of simplicity often equates to a reduction in the sheer volume of rules. This conventional understanding, she argues, fails to withstand scrutiny when confronted with the intricate realities of financial governance.
"In the real architecture of financial governance, complexity is seldom abolished," Passador explains. "It is reorganized, translated, relocated, and made to appear more manageable." Her central thesis is that simplification should not be viewed as the antithesis of complexity, but rather as a strategic method for its effective management. This distinction is crucial, as the modern regulatory state is not a product of elegant simplicity but a layered construct of statutes, delegated acts, technical standards, supervisory statements, guidance documents, and ongoing reviews.
The Layered Architecture of Modern Financial Regulation
The European Union serves as a prime example of this layered regulatory architecture, though similar patterns, albeit with differing institutional forms, are evident in the United States and the United Kingdom. This pervasive layering, encompassing a vast array of legal instruments and interpretative mechanisms, presents a fundamental challenge: how can legal systems render highly complex financial regulations intelligible without deluding themselves into believing that complexity itself can be eradicated?
Passador’s paper delves into this question by first dissecting the practical meaning of simplification beyond mere slogans. It then investigates whether the EU, US, and UK are pursuing genuinely divergent paths or converging towards a common governance logic. Crucially, it examines the conditions under which simplification genuinely enhances the practical application of law, rather than simply shifting compliance burdens between different institutional actors. These inquiries are not abstract; they directly address the distribution of authority within financial regulation, probing who decides, who interprets, who bears the cost of opacity, and who benefits from the repackaging of complexity as clarity.
Introducing "Reflexive Simplification"
To address this challenge, Passador proposes "reflexive simplification." This concept emphasizes that regulation does not inherently improve simply by becoming shorter. In highly technical and dense financial markets, the true measure of success is not textual economy but "operational intelligibility." A framework is better simplified when its stakeholders can grasp the interrelationships between its various components, when institutions can adapt rules based on practical experience, and when the clarification process does not subtly transfer power, discretion, or compliance costs to unintended parties. In essence, reflexive simplification is simplification that is acutely aware of its own institutional ramifications.
The comparative analysis of regulatory approaches in the EU, US, and UK highlights distinct "legal technologies" for managing complexity. The EU often frames simplification through coherence and codification, while the US emphasizes administrative rationality, retrospective review, and procedural iteration. Post-Brexit, the UK has increasingly focused on regulator-led rulebook restructuring and supervisory tailoring. These are not mere stylistic variations but different methods for solving the same core problem: managing complexity through revision, adjustment, and institutional learning, rather than simple subtraction.
Complexity as a Resource, Not Always a Pathology
A significant contribution of Passador’s research is its insistence that complexity should not invariably be viewed as a regulatory pathology. While regulatory density can sometimes indicate excessive rules, layers, or interpretive sites, it can also serve as a valuable resource. Complexity can preserve institutional memory, facilitate adaptation, and create channels for learning from crises, implementation challenges, and supervisory practices.
For instance, the layered structure of financial regulation in the EU, while seemingly a product of legislative excess, also functions as an adaptive mechanism. It allows for the dynamic interaction between political legislation, technical standard-setting, and supervisory interpretation over time. To perceive only "inflation" in this density is to overlook the crucial governance function that it sometimes performs.
The Evolving Role of Soft Law
The role of "soft law"—guidelines, supervisory statements, Q&As, no-action letters, and consultation papers—is particularly illuminating in this context. While often dismissed as contributing to normative sprawl, these instruments play a vital mediating role between abstract legislation and practical application. They enable the interpretation and operationalization of difficult rules without necessitating a complete overhaul of the legislative framework each time ambiguity arises.
Passador acknowledges that soft law is not without its drawbacks, potentially obscuring hierarchies, blurring accountability, and favoring well-connected market participants. However, it also serves as a critical space for real-time legal system learning. Consequently, simplification should be evaluated not solely on what it removes, but on what it reshapes and enables.
Case Study: Sustainable Finance
The paper further tests this framework within the complex domain of sustainable finance, specifically examining the interplay between the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), and the Taxonomy Regulation. This confluence of instruments, while designed to advance sustainability disclosure, generates overlapping concepts, divergent vocabularies, and substantial interpretive burdens, creating a system rich in information but often lacking in clarity.
In such scenarios, the reflexive approach proves invaluable. The optimal response, Passador argues, is not to dismantle the regulatory architecture but to enhance its legibility. This involves creating visible translation tools, aligning terminology across different regimes, and establishing review cycles that address implementation frictions.
Practical Implications for Regulatory Design
The research yields several critical practical implications for policymakers and regulators:
Enhanced Transparency Beyond Publication
First, transparency must be understood more ambitiously. Mere publication of rules is insufficient. True clarity emerges when stakeholders can trace a rule’s origin, understand its institutional context, and perceive its connections to surrounding instruments. Clarity, therefore, extends beyond disclosure to encompass comprehensive orientation.
Iterative Consolidation Over Ceremonial Codification
Second, consolidation efforts should be iterative rather than purely ceremonial. Codification cannot remain an infrequent event reserved for periods of overwhelming regulatory accumulation. Dense regulatory systems necessitate regular, disciplined, and visible opportunities for reordering. Revision should be an integrated aspect of the system’s lifecycle, not a measure postponed until complexity becomes unmanageable.
Meaningful Participation as a Learning Mechanism
Third, public participation, such as consultations, must be treated as a mechanism for learning, not merely a ritual of validation. Consultation gains its true meaning when feedback from firms, supervisors, advisors, and affected parties genuinely informs the revision process. Otherwise, it risks becoming superficial procedural ornamentation.
Distinguishing Simplification from Deregulation
Fourth, policymakers must exercise greater care in distinguishing simplification from deregulation. A regulatory framework may appear streamlined and simplified while, in reality, it merely transfers uncertainty to different actors or domains. Burdens do not vanish simply by being removed from a document; they may migrate from lawmakers to regulators, from institutions to investors, or from large, well-resourced market actors to smaller ones less equipped to manage ambiguity.
The Non-Neutrality of Simplification Reforms
Finally, and perhaps most significantly, simplification is never a neutral exercise. Every reform promising clarity inevitably reallocates authority, expertise, and advantage. It elevates certain interpreters, burdens others, and redefines the boundaries between explicit rules and implicit discretion. The fundamental question is not merely whether a law has become simpler, but "simpler for whom?"
Conclusion: Towards Governable Complexity
Ultimately, Passador advocates for viewing simplification as a form of governance. It is not merely a drafting exercise but an institutional choice that shapes how legal systems distribute knowledge, manage opacity, and render complexity governable. The paper calls for a paradigm shift: instead of pursuing an absolute sense of simplicity, the focus should be on making financial regulation more intelligible, more revisable, and more honest about its inherent trade-offs.
The future of financial regulation, as argued in Passador’s research, lies not in the elusive fantasy of a frictionless rulebook but in the more attainable and serious ambition of "governable complexity." Clarity, in this framework, is not the absence of density but the product of institutions capable of explaining, revising, and disciplining complexity over time. This strategic policy vision is grounded in traceability, iterative revision, participatory learning, and a candid acknowledgment of simplification’s distributive effects. By refusing to misunderstand complexity, Passador’s study contributes a vital perspective to the ongoing academic and regulatory discourse, asserting that in modern financial law, the challenge is not to abolish complexity but to render it legible enough for the law to continue deserving the label of "clear."
