The Government is about to give the Reserve Bank power to remove directors from the boards of finance companies that do not play by the rules.

The move is one of several by the Government to help restore investor confidence in New Zealand's financial institutions after finance company failures destroyed around $8.6 billion of investor wealth between 2006 and 2009.

"It is one of these things that puts steps in place to ensure that it never happens again," said Sam Shuttleworth, a financial services partner at PricewaterhouseCoopers.

Next week, the Government will introduce legislation to tighten the rules for non-bank deposit takers (NBDTs), which will form the second leg of legislation that was first introduced last year.

NBDTs are entities that are not registered banks but which offer debt securities to the public and carry on the business of borrowing and lending money, or providing financial services, or both. The definition includes finance companies, building societies and credit unions.

The first stage involved creating a framework for the prudential regulation for non-bank deposit takers, bringing in rules around credit ratings, risk management, governance, capital, related party exposures and liquidity.

Finance Minister Bill English said yesterday that the new legislation, which is expected to become effective on June 1, 2013, would give the Reserve Bank the power to remove directors and issue directions in certain circumstances.

Under the new rules, NBDT directors will have to notify the Reserve Bank if a director or senior officer triggers new prescribed suitability criteria and the bank will have the power to remove those individuals.

Shuttleworth said the second phase of legislation was a natural development from last year's law changes.

"It should be welcomed because at the end of the day you want to make sure that there is a sound and efficient financial system here and this was one of the gaps that needed to be closed," he said.

"It is making sure that if you are taking money from the public there are a set of rules that you must follow, whether you are a bank or a non-bank," he said.

"It means that if you are accepting money, there should be a baseline minimum that you need to meet around fit and proper directors and senior executives.

"It would be a brave person to say that this is not needed."

Shuttleworth said the new rules should not prove to be a hurdle for the few remaining finance companies to have survived the 2006-9 meltdown because many already have the proper governance procedures in place.