The Reserve Bank of New Zealand has proposed a tightening of its regulation of non-bank deposit takers to make their rules more like those faced by full banks.The Reserve Bank, which both runs monetary policy and regulates financial institutions, said it was considering removing the current front-line supervisory role of trustees for NBDTs, such as building societies, credit unions and finance companies, and replacing it with direct supervision by the central bank.The Reserve Bank released a discussion paper and called for submissions by May 17 on its regime for NBDTs, which it introduced in 2010 after the collapse of most of New Zealand's finance companies, which had been very lightly regulated.The RBNZ's deputy governor Grant Spencer said: "It is timely to now step back and assess the framework's overall operation and efficiency and to ensure it is appropriately tailored for the current NBDT environment." The discussion paper shows there are now 68 NBDTs, most with assets of less than NZ$100 million. The sector's lending has halved from its peak of NZ$25 billion in 2006 and now accounts for just 3.4 per cent of total lending, thanks to the collapse of over 20 finance companies and the registration of three large NBDTs as banks (PSIS as The Cooperative Bank, SBS and Heartland). The rest of the financial sector is dominated by the big four Australian-owned banks, Commonwealth Bank's ASB, NAB's BNZ, Westpac and ANZ.The RBNZ proposed changing its current system of giving exemptions to some institutions to instead using 'statutory carve outs' that specify in law which types of institutions are subject to regulation.It also suggested removing or downgrading the role of trustees, who have been the 'frontline' supervisors under the regime created in 2010. Trustees have been criticised for their performance in monitoring finance companies. The RBNZ sais: "There is merit in considering whether the option of direct supervision of NBDTs by the bank may be a more efficient mechanism for supervising the sector than the current model involving both trustees and the bank."Many of the potential changes to the regime discussed in this paper would have the effect of making the NBDT regime more similar to the prudential regime for registered banks.The bank is due to provide a report on the review to the Minister of Finance Bill English by September 9.