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’reconsidering 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 issubmittedto the credit bureaus so they can minimize potential repercussions.
How to build preventative risk controls for credit bureau reporting
Building risk controlrequirespeople, process, and tools to oversee the entirety ofaprogram 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’sno such thing as zero risk. Gauge the level of risktheorganization can take on. Do you have a control in place for each area of risk?
- Put data quality first- Whetherthe furnisher isreporting in-house or through a third-party service, oversee the data that streams in and out oftheorganization. Do you have tools and resources tomaintaintrusted dataprior to reporting?
- Govern data – Data is everchanging which means the informationbeingreportedis too. Do you have sustainable methods tomaintainquality data?
Preventative controls and data quality go hand in hand
Preventativecontrols are aboutestablishingsound data quality management across theearly stagesof thecredit bureau reporting process.To get started, considerevaluatingpeople,tools, and processas part of the data program.
- 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.
- 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 applyingpreventativecontrols across reporting.
A data quality tool can be a reliable addition to the reporting lifecycle because itcan sit earlier on in the process, allowing users to automate and visualize the health oftheir Metro 2® fileand see how it measures up to the control expectations.(Hint: Experian has the perfect solution for this called DataArc 360™.)
- Process
A furnisher’sprocess 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 issuesbefore starting the process all over again.
The key here isestablishingand 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 controlsacross their reporting process, remember that data quality management is a foundational step toproactivepreparing files for credit bureau reporting. Experian has the tools andexpertiseto get you started.