Dealing in the world of data can present high risk and high reward. While data is a necessary component to many organizations’ ecosystems, without the proper processes and tools in place, data management can be risky business.
With data at the core of an organization’s operations, furnishers often consider how they can prepare their data to meet quality, integrity, and timeliness standards set by the regulators. If quality control is ignored within reporting systems, furnishers increase their risk of being fined by regulators, operational inefficiencies, and ultimately, a damaged reputation.
This is where preventative controls become increasingly important for furnishers.
What are preventative controls?
A preventative control focuses on intercepting data errors prior to furnishers processing and submitting their Metro 2® files. As compared to a detective control, which focuses on fixing any data errors after the furnishers have processed and submitted the file.
In short, preventative and detective controls are a key part of any risk management plan.
Why is risk management important to furnishers?
Furnishers care about risk management and what their first, second, and third line of defense is, especially in today’s highly regulated environment. When furnishers evaluate risk for their organization, they’re considering how to control risk around operations, technology, credit, liquidity, compliance, and reputation. Through preventative risk controls, furnishers are considering what action they need to take before their Metro 2® file is submitted to the credit bureaus so they can minimize potential repercussions.
How to build preventative risk controls for credit bureau reporting
Building risk control requires people, process, and tools to oversee the entirety of a program from data collection, management, to reporting. When considering preventative controls, these steps can be taken to catch any data errors or file issues before the information leaves the business doors.
Meet with internal auditors – Task internal auditors with reviewing data programs and how they reflect in reporting. Are you staying in compliance?
Understand risk tolerance – There’s no such thing as zero risk. Gauge the level of risk the organization can take on. Do you have a control in place for each area of risk?
Put data quality first - Whether the furnisher is reporting in-house or through a third-party service, oversee the data that streams in and out of the organization. Do you have tools and resources to maintain trusted data prior to reporting?
Govern data – Data is everchanging which means the information being reported is too. Do you have sustainable methods to maintain quality data?
Preventative controls and data quality go hand in hand
Preventative controls are about establishing sound data quality management across the early stages of the credit bureau reporting process. To get started, consider evaluating people, tools, and process as part of the data program.
1.People
Resources will vary depending on how big or small the furnisher is. Oftentimes, small organizations have challenges in applying preventative controls due to limited resources, meaning many solutions become reactive instead of proactive. Carmen Hearn, VP of Product at Experian Data Quality, says in a recent credit union webinar,
“The conundrum in this challenge is that often there’s limited or no staff that can be assigned or allocated to this risk control challenge. Unlike big retail banks that have large, dedicated teams, the credit unions generally have either small or no staff dedicated in the back office. Data files either get a light check or no check before they are submitted to the credit bureaus. For those that get a light check, it’s often manual and on an Excel spreadsheet. It’s truly a challenge for them.”
Without the right resources, furnishers will continuously find themselves reacting to data errors and issues that could’ve been prevented before submitting their file.
2. Tools
Tools and technology, beyond Excel, are vital to building a cohesive data ecosystem. For smaller furnishers where their teams are severely limited, the right technology becomes increasingly important to applying preventative controls across reporting.
A data quality tool can be a reliable addition to the reporting lifecycle because it can sit earlier on in the process, allowing users to automate and visualize the health of their Metro 2® file and see how it measures up to the control expectations. (Hint: Experian has the perfect solution for this called DataArc 360™.)
3. Process
A furnisher’s process always comes back to the data furnishing lifecycle—maintain the system of record, program the system with rules and Metro 2® reporting logic, create each file to be consistent with the Metro 2® format, send the file to the bureau like Experian, the bureau analyzes the data, actionable insights are sent back to the furnisher, and lastly, the furnisher reviews the reports and corrects any data issues before starting the process all over again.
The key here is establishing and maintaining preventative measures through resources like technology and users. A secure and seamless process, equipped with risk control, allows furnishers to remain confident in their data and minimize risk.
As furnishers build preventative controls across their reporting process, remember that data quality management is a foundational step to proactive preparing files for credit bureau reporting. Experian has the tools and expertise to get you started.
