A law creating a financial free zone for Abu Dhabi on Al Maryah Island has been signed, intended to attract greater numbers of firms to Sowwah Square.
The government support for financial firms comes as local banks help to propel stock markets in both Dubai and Abu Dhabi to levels not achieved since the crisis at Dubai World in 2009.
The Abu Dhabi World Financial Market will cover an area of 1,680,323 square metres on the island, according to Federal Decree 15 of 2013.
The island is currently home to the Cleveland Clinic, the Rosewood Hotel and a number of consultancies and law firms.
An official launch is anticipated within weeks.
"I can tell you that all the local Emirati investors are talking about it," said Fathi Ben Grira, the chief executive at Menacorp. "All the big international financial institutions would love to be in Abu Dhabi, because of its stability. There is a general perception that they can seize opportunities in terms of business."
The need for a strong legal environment for financial firms had been obvious since the construction of Sowwah Square, Mr Ben Grira added. "You need to have companies to come to all these towers. If you want to create a financial centre, by definition it has to be an offshore one," he said.
Free zones permit international companies to establish operations in the country without a local partner and to be able to repatriate profits and capital abroad.
Abu Dhabi's plan to create a financial hub on Sowwah Island comes amid rising competition to attract international financial heavyweights from other Arabian Gulf financial hubs including neighbouring Dubai, Riyadh and Doha.
After a strategic review of all government projects during 2011, work has resumed this year on Reem Island and Saadiyat Island, alongside the development of the UAE's financial services sector with a push to create a federal credit bureau.
Since the start of the year, local equities have rallied sharply, led by banks and property companies, said Liz Martins, an economist at HSBC Middle East.
"The recovery from the 2009 crisis has lagged some of the rest of the region," she said. "Dubai was recovering in 2012 and led the way, but in 2013 we've gone up a gear."
A recovery in Dubai led by an improvement in the global economy has now "taken root", she said, and was resulting in a stronger domestic environment, complemented by renewed work on projects in Abu Dhabi such as the Louvre Museum on Saadiyat Island and the expansion of Abu Dhabi International Airport.
Abu Dhabi shares entered bull territory yesterday with the market up by more than 21 per cent since the beginning of the year. Dubai shares have gained about 24.5 per cent.
The move to create a financial free zone would help to anchor more investment in the capital, said Rami Sidani, the head of Middle East and North Africa at Schroders Investment Management.
"Abu Dhabi is moving in the right direction, to encourage foreign direct investment and foreign businesses," Mr Sidani said.
"Dubai was ahead due to its less reliance in oil, but we do see Abu Dhabi catching up."
Abu Dhabi World Financial Market will be the emirate's fifth free zone, following Khalifa Industrial Zone Abu Dhabi, the media hub twofour54, Masdar City and Abu Dhabi Airport Free Zone.
Financial firms had been advocating the creation of a free zone to rival the Dubai International Financial Centre for some time, said Nabil Farhat, a partner at Al Fajer Securities in Abu Dhabi.
"It's what they have been asking for. In the past, foreign investors had expressed that they wanted 100 per cent ownership and control of board and tax before injecting liquidity directly in the UAE," he said.
It has not been spelt whether the new free zone will have its own regulator, in the same manner as the Dubai Financial Services Authority, which regulates the DIFC.
However, a fourth financial regulator for the UAE joining the Central Bank, Securities and Commodities Authority and the DFSA is a strong possibility, said Kai Schneider, a partner at the law firm Latham and Watkins.
