Fairfax Media can reveal the parliamentary committee into the regulation of brothels will on Tuesday propose the biggest overhaul of the NSW sex industry in more than two decades with police receiving "greater powers" to enter premises and monitor illegal activity. Police background checks will also form part of a revised license approval process aiming to weed out brothel barons with convictions and criminal links.

The reforms are expected to be criticised by sex industry groups who say police were stripped of such powers, and the industry decriminalised, in the mid-'90s because of corruption.

However, the changes represent a significant win for local government which, for years, has felt "unreasonably burdened" with the regulatory responsibilities, arguing the job is "impossible" to perform alone.

Local Government NSW President Keith Rhoades described the creation of a "specialist police unit" as a "real and meaningful step forward".

"It's a complex area of law and I commend the parliamentary inquiry for its diligence in seeking to balance the interests of all sectors of the community," he said.

Premier Mike Baird asked Parliament to establish a brothel inquiry in March after an ongoing Fairfax investigation exposed an industry in crisis. Local councils had become powerless to prevent illegal parlours from opening anywhere, including alongside schools, learning centres and within residential complexes.

When some councils, such as Hornsby, spent upwards of $60,000 trying to close rogue operators through the courts – they lost on legal technicalities. To ratepayers' dismay, those extreme measures – and costs – involved paying private investigators to go undercover and have sex with women on the premises to prove the businesses were brothels.

During the inquiry the committee heard from numerous stakeholders, including NSW Police Deputy Commissioner Nick Kaldas who revealed police intelligence had linked outlaw motorcycle gangs to about 40 brothels across the state. "As it is right now, there is next to no regulation, no enforcement, and abuses are far more likely to go undetected, with horrible consequences for individuals," he said.

Mr Kaldas and the AFP's manager of victim-based crime Commander Glen McEwen both spoke of women being trafficked to Australia under false pretences, then slipping off the radar inside brothels where, forever in debt, life became a never-ending cycle of long hours, large volumes of clients and "limitations" to interact with the wider community.

Under the new system councils will remain the primary regulatory authority. However, the report recommends the NSW Police Force establish a stand-alone unit that provides local government with the support it needs to help identify and close rogue operators. Crucially for councils, closure orders would also be strengthened to include the brothel's address – a move designed to stop illegal parlours from continuing under someone else's name.

Email: eduff@fairfaxmedia.com.au