Campaign finance rules for local body politicians may be tightened before next year's elections in the fallout from the John Banks anonymous donations affair, which Prime Minister John Key said showed existing law to be "an ass".

Police said last week they found Mr Banks had personally solicited large donations to his 2010 Auckland mayoral campaign from controversial internet tycoon Kim Dotcom and casino company SkyCity but later signed a declaration that the money came from anonymous donors.

However, police said there was insufficient evidence to consider a prosecution for knowingly filing a false return and they were unable to consider other false return charges because complaints were laid too late.

Mr Key said yesterday that in considering Mr Banks' standing as a minister he'd relied on the assurances the Act MP gave him, "which is he complied with the law".


His reading of the police finding backed that up.

But he said the law around local body electoral finances "may be very loose".

"The law literally is an ass in this particular case ... anyone can drive a bus through [it]." Mr Key said the Local Electoral Act may need reforming, "and that's something we'll consider in due course".

Changes may be possible before next year's local authority elections, depending on the Government's legislative workload.

Local Government Minister David Carter said he'd had preliminary discussions with officials about aligning the Local Electoral Act with legislation that applies to candidates standing for Parliament, "particularly in regard to anonymous donations".

Labour leader David Shearer said his party was prepared to work with National to improve transparency around donations to local government candidates. 'It's something we've talked about for a long time and I think there's a possibility of sitting down and making sure people have confidence in our electoral laws."

Mr Banks said he would "absolutely" support any move to tighten up the Local Electoral Act.