Halliday & Matthiessen (2014: 491n):
Where the embedded element functions as Head, we may leave out the intermediate (nominal group) step in the analysis and represent the embedded clause or phrase as functioning directly in the structure of the outer clause, as Subject or whatever. This is a notational simplification; it does not affect the status of the embedded element as a nominalisation. Note that this still does not make it resemble hypotaxis; in hypotaxis one clause is dependent on another, but in no sense is it a constituent part of it.