Regulatory haven

A regulatory haven is jurisdictions that have light financial regulation system. They often associated with having have lax tax regulation acting as tax haven and having financial secrecy. Regulatory haven's can be a state, country, or territory which maintains a system of financial secrecy and little or no financial regulation. Some of the countries that are considered to be regulatory havens include Cayman Islands, British Virgin Islands, Singapore and Hong Kong. They are used by some financial firms to avoid strict financial regulation and is a form of regulatory arbitrage.
It has been argued that the consequence of regulatory havens is increasing of inequality of income redistribution and increase systemic risk of financial markets in countries that operate well developed financial regulations while benefiting those jurisdictions that operate as regulatory havens by attracting business activity and economic development. 
Characteristics.
Regulatory havens are used by market participants in order to maximize their profit to exploit regulatory gaps. They take even more market risk that is, due to existence of the gap, not detected in a timely manner or is simply ignored by the regulatory agencies even if it is noticed. Companies that try to maximize their profits in this way more often than less take advantage of regulatory havens. Regulatory havens can be defined as jurisdictions that have light financial regulation system as well as lax tax regulation. Also, regulatory haven poses less strict reporting requirements and trading restrictions. Those mostly include low minimum capital required and opacity of the owners to conduct a business in a country that is considered to be regulatory haven. Some of the countries that are considered to be regulatory havens include Caymans, Singapore and Hong Kong. Regulatory havens can most easily be characterized as jurisdictions that have different tax system that is usually suitable for companies trying to use regulatory gaps to increase their profit and as jurisdictions that apply stricter confidentiality rules compared to the country where the company that uses such haven is placed (Morriss, Henson, 2013). Besides that regulatory havens, also often called offshore financial centers, can be characterized as follows:
Components.
As a financial system, regulatory haven can be divided in two components that include:
Consequences.
The concept of regulatory haven is often linked to the concept of tax haven. Tax haven can be defined as jurisdiction that requires low or no taxation and is characterized by strict banking secret. The information regarding taxes is not the subject of exchange with other countries, but if they are the achievement of restrictive conditions is required. Tax haven primarily ensures to nonresidential subjects and companies to avoid paying higher taxes in their domestic territory. Disregarding the motivation for a company to establish business relationships within the jurisdictions that are classified as regulatory havens, that can include no tax obligation, banking secret or low regulatory requirements, and no matter the activity undertaken, the establishment of regulatory haven can be attributed to the effort to specialize the economy of a country in some type of business activity, for example export of financial services. This type of specialization most commonly attributes the need to generate revenues that in some countries represents majority of realized national income. According to previously stated the main motivation to establish regulatory haven is to support domestic economy through business conducted with nonresidential companies by offering them better financial conditions for their business. That can also have negative consequences in the legal sense by enabling:
The direct consequence of regulatory havens is increasing of inequality of income redistribution. Since the higher incomes are mobile, regulatory havens protect those society members that earn more and enable them to increase their net profit due to lower tax base in regulatory haven. Consequently, society members that earn less pay more in taxes compared to wealthy individuals that use regulatory havens since they can be called upon their debts more reliably. Also, is contributes to social inequality since smaller producers face paying higher taxes even though they work more and usually work in worse working conditions.
Regulatory havens enable the concealment of income and that is one of its main attractions compared to non-haven states.
Reactions.
Since regulatory havens have impact of financial system, the necessity to develop control reactions has become mandatory. There are two possible directions that could be taken in order to regulate those jurisdictions that are considered to be regulatory havens. Those include the following: