The paper argues how a highly complex financial regulation can determine an increased systemic risk. In the first part, it outlines how the economic concepts of risk and uncertainty have shaped the main regulatory frameworks over the last two decades. Subsequently, it analyses the regulatory response to the global financial crisis of 2007-08, in order to understand whether and to what extent an excessively complex financial regulation may turn out to be costly and sub-optimal for crises prevention.
The research proposes to widen the application of the distinction between risk and uncertainty to financial regulation to achieve more simplicity, without involving less stringent rules. To this end, some options are envisaged to increase: the degree of proportionality in financial rules; the complementarity between entity- and activity-based regulations; the flexibility within the rulemaking process between the political and regulatory levels.
