materiality
Impact on customers, operations, financial soundness or market integrity.
How the laws define this
Both regulatory frameworks establish that materiality centers on evaluating potential impact to dictate the proportional level of required controls and oversight. Under both approaches, assessing materiality ensures that technology deployment is matched with appropriate governance and risk management based on how significantly it could affect financial stability or operations. The instruments diverge, however, in how they define the subject, scope, and outcomes of this assessment. The Guidelines on AI Risk Management for Financial Institutions (MAS consultation paper) defines materiality as a measure of an AI system's significance, explicitly assessing impact on customers, operations, financial soundness, or market integrity to tier required controls, testing, and governance intensity. In contrast, the Guidelines for Financial Institutions Adopting Enabling Technologies (joint UAE regulators) defines materiality as a process evaluating a broader enabling-technology arrangement. This joint UAE regulators instrument focuses on impact to the institution and financial stability, extending downstream outcomes beyond internal controls, monitoring, and documentation to include potential supervisory engagement and approval.
Synthesised from the 2 statutory definitions below. Each one is quoted in full, with its source.
What it triggers
- In the Guidelines on AI Risk Management for Financial Institutions, it is used to tier required controls, testing, and governance intensity.
Definitions (2)
A measure of an AI system's significance based on its potential impact on customers, operations, financial soundness or market integrity; used to tier required controls, testing, and governance intensity.
A process to determine the criticality and potential impact of a given enabling-technology arrangement on the institution and financial stability; materiality drives the required level of controls, monitoring, documentation and, where appropriate, supervisory engagement and approval.
Not to be confused with
A material AI system is an AI application that has been classified as material, whereas materiality is the measure or process of that classification.
Questions and answers
What does materiality determine in AI risk management?
Materiality determines the criticality and potential impact, which drives the required level of controls, monitoring, documentation, supervisory engagement and approval.
Related Terms
material impact
Customer or market-facing effects causing measurable harm....
Materiality Assessment
Risk-based determination of an AI application's significance....
Material AI system
An AI application with significant impact or regulatory relevance....
Material AI Portfolio
Collection of AI systems material to an entity's operations or risk profile....
Decision significance
Classification of expected impact: non‑significant, significant, critical....