Abu Dhabi financial regulator may create framework for virtual currencies

DUBAI (Reuters) - The regulator of Abu Dhabi's international financial centre said it could create rules for exchanges handling virtual currencies, in a sign that authorities in the United Arab Emirates may allow trade in cryptocurrencies such as bitcoin to develop.

The Financial Services Regulatory Authority (FSRA) is considering whether to establish a framework for virtual currency exchanges, the FSRA, which supervises the Abu Dhabi Global Market (ADGM), said on Sunday.

"In considering such a framework, the FSRA intends to consult and work closely with industry participants and relevant professional bodies," the regulator said.

Previously, regulators in the UAE had expressed scepticism about cryptocurrencies, without going as far as trying to enforce an outright ban on them.

Last September, the Dubai Financial Services Authority, which regulates the Dubai International Financial Centre, warned investors to be cautious about dealing in them because they were not regulated.

In October, the UAE central bank said it did not recognise bitcoin as an official currency, citing the risk of it being used in money laundering and terrorist financing, and last week the UAE's securities regulator warned the public about the risks of using digital tokens.

The FSRA's statement, however, raised the prospect that cryptocurrencies could be positively endorsed by regulators, at least within the confines of the ADGM.

"The FSRA notes that virtual currencies, although not legal tender, are gaining interest globally as a medium of exchange for goods and services," the regulator said.

Elsewhere in the Gulf, many regulators are wary of cryptocurrencies. The Saudi Arabian central bank has advised people not to trade bitcoin, and last week, Qatar's central bank told banks not to deal in any way with cryptocurrencies.

But Bahrain, which competes with the UAE as a hub for financial services, is exploring the use of cryptocurrencies and has created a "regulatory sandbox" in which companies can test digital currency technology and other financial innovations without the burden of heavy regulation.

(Reporting by Andrew Torchia; editing by Giles Elgood)