The Australian Prudential Regulation Authority has conceded that its revised related entities standard may create difficulties for banks and other authorised deposit-taking institutions.Prudential standard APS 222, Associations with Related Entities, has been updated with a view to reducing contagion risk in corporate groups.New limits on related entity exposures may make it more difficult for potential new entrants that fund their related entities' business to meet prudential requirements.Changes to the eligibility of offshore subsidiaries may increase the cost of funding those subsidiaries, affecting the ability of ADIs to compete offshore.APRA also concedes that changes to entity limits, combined with the Reserve Bank of New Zealand's proposed capital reforms, may affect the ability of Australian ADIs to expand their operations in New Zealand without additional capital cost."For a small number of ADIs the impacts could be material," APRA said in a response to submissions published yesterday.Included in the changes, APRA has revised its limits on the extent to which authorised deposit taking institutions can be exposed to related entities. The current limit on exposure to individual related ADIs is 50 per cent; it will go down to 25 per cent.It has set new minimum requirements for ADIs to assess contagion risk and it has removed the eligibility of ADI's overseas subsidiaries to be regulated under APRA's extended licence entity framework.The updated standard also establishes a broader definition of related parties that includes board directors and substantial shareholders.APRA deputy chair John Lonsdale said: "As we saw during the global financial crisis, deficiencies in governance or internal controls in one part of a corporate group can quickly spread and cause financial or reputational damage to an ADI."Concessions in the existing framework led to some ADIs establishing operations in foreign jurisdictions, which are managed and funded within the domestic bank. APRA has only limited visibility of these operations, which also fall outside the purview of foreign regulators."Lonsdale said that, given the impact of the changes, APRA was open to considering appropriate transition arrangements on a case-by-case basis.