The UAE has introduced new regulations covering the issuing of covered bonds in a move that will strengthen local financial markets.

The rules were issued by the Securities and Commodities Authority (SCA), the UAE’s financial market regulator.

Covered bonds are typically backed by cash flows from mortgages and could be used to support the rebounding property market in Dubai and Abu Dhabi.

With the property sector set to grow, the use of covered bonds could help regional banks and financial institutions meet the anticipated demand for financing from real estate developers.

The introduction of a new investment tool is also expected to diversify the UAE’s financial markets and help boost the stock exchanges’ contribution to the country’s economy.

The new rules states that banks must obtain a licence from the SCA before issuing bonds. To qualify, the issuer must have a minimum capital of AED100m ($27.23m).

Covered bonds are considered relatively low risk as investors have the right to claim on a separate pool of assets isolated from the bond issuer in the case of a default. This claim is in addition to chasing payment from the bond issuer itself.