The financial world has become very complex and so has financial regulation. It is easy to claim that complex regulation is necessitated by the increasing complexity of the financial markets. After all, regulations are, in part, shaped by evolving market structures. In some cases, new regulations arise in response to a crisis or a perceived failure of some kind.
Unfortunately, markets often evolve faster than the regulations; detailed rule writing that underlies much of the complex regulation can become obsolete, which then requires more rule writing. Yet, we should consider that causality can work both ways. Regulations themselves give rise to incentives to evade the rules. Such regulatory arbitrage can result in increasingly complex financial structures designed to fall outside existing rules.