Transforming Risk Management: Best Practices for Public Record Monitoring
Written by: Samuel Hon, CEO of First Corporate Solutions & Beate Egloff, Principal Product Manager of First Corporate Solutions
Public record monitoring has been a broadly used practice for many years in the factoring industry, helping to alert factors about possible risks to the security of collateral and on indicators that a debtor could be on the road to default or bankruptcy.
For those unfamiliar with monitoring, notification alerts can range from a heads-up about a new tax lien or judgment, to a business entity name change for a debtor. The incident that triggers a monitoring alert can vary depending on the application, but it’s usually based on the debtor's name or file number.
Technological advancements through the years have greatly increased the types of monitoring available, reduced the cost and decreased turnaround time for results. However, how any technology is implemented can add unnecessary risk on top of the already inherent risk that comes with the varying policies and management of public record data from jurisdiction to jurisdiction.
A BRIEF HISTORY TO WHERE WE ARE NOW
Fifty years ago, monitoring was a grueling process. Companies would have to track any periodic searches they did manually and then request those searches from a partner or jurisdiction, many of whom were also using paper-based filing systems. The whole process was expensive, prone to errors and time-consuming. If you’re a veteran of the industry, your public record monitoring may have been a paper publication like the green sheets from McCords, which were beloved by many into the mid-90s. (For anyone who wasn’t around when McCords was well-known in the industry, the publication was actually green.)
Starting in the 1990s, software and web applications that offered monitoring products became more common, though these web applications would be considered primitive in comparison to those of today.
With the digital revolution of the 2000s, an ever-growing number of jurisdictions created internet and bulk data access to public records, furthering the possible reach for monitoring solutions.
Nowadays, a vast array of public record data is accessible via all kinds of cloud applications and jurisdictional websites. All data is not created equal, though, and how you, your partner, the application, website, or system in the background handles the data can all impact your monitoring results.
BEST PRACTICES FOR EFFECTIVE MONITORING
Companies can monitor a plethora public records, such as business regulations, tax liens, UCC filings, and court records. Just know it may not be called “monitoring” by your partner – maybe it’s called something like “update” or “track” in the application that you use, or it could even be more of a periodic search product with a completely different name.
Regardless of what type of public record is being monitored or what it’s called, you should know what goes into your partner’s monitoring process to help you avoid pitfalls like acting on incomplete or misunderstood data, or exposing your company to data privacy violations and losses.
UNDERSTAND WHERE YOUR DATA COMES FROM
Public record monitoring is all based on data, and the United States alone has more than 4,000 filing office jurisdictions. Even if you are just monitoring state and county liens, UCC filings, and bankruptcy, the number of filing offices adds up quickly.
Many variations can crop up from state to state and county to county. Some examples are Georgia and Louisiana, which have county or parish systems with central indexes. Then there are other places like Baltimore, Maryland, which is one of the few independent cities in the United States that has its own public records, and states like Georgia and Illinois have statewide tax lien registries.
The public record and jurisdictional systems don’t stay static, such as in Texas, which implemented a new business court system that started accepting cases last year. Making sure to stay informed about legislative changes that can impact public records will help prepare you by requesting the appropriate monitoring and allow you to quality check any partners that are used.
Caution is recommended when working with a new partner, application, state or filing office jurisdiction since data policies, data management and where records are actually filed can vary broadly. Knowing the nuances of the jurisdictional or partner systems and applications you use for monitoring is key to avoiding missing data. A couple of examples are differences in how expired or terminated records are handled, and whether federal tax liens are indexed with UCC records.
Find out where the data is sourced from for any applications or partners that are used in your monitoring process. Is the data direct from the jurisdiction or agency? Is any data significantly manipulated or removed? A partner may purchase data directly from the jurisdictions, but then make changes or combine it with other data in such a way that it impacts the records that can be found and the monitoring results you’ll receive.
KNOW YOUR DATA CURRENCY
Technology has both improved and increased the ways that data currency can be calculated. Be sure you understand how currency dates are calculated for the monitoring that you do. If the currency date provided is May 1st, 2025, that date could be based on the most current record in the data, which may be the only record on that date. Or May 1st could be the date the data was received, or based on an algorithm that uses average filing counts. Knowing how the currency date is calculated will help determine whether it is suitable for how you intend to use the data.
A currency date provided by a jurisdiction may be the date through which the jurisdiction is confident all records have been processed. However, more current records may also have been processed and included.
In addition, if an application or monitoring product uses multiple types of data that come from different sources, the currency date can be different for each data type and source.
PROTECT YOURSELF AND YOUR CLIENTS WITH STRONGER DATA PRIVACY
Public records can include personally identifiable information (PII), which may be required by the jurisdictions for that type of record or optionally included by the filer.
For PII included by the filer, systematically identifying all PII can be difficult, and some jurisdictions may not have the necessary systems in place or the budget to implement the latest redaction technology. Monitoring results then could include PII in any data or document images that are provided and should be handled and stored carefully, in the same manner as any other information with PII.
Understanding the data you receive and store in relation to whether PII can be included becomes increasingly important as more and more states pass privacy legislation.
Security goes hand in hand with data privacy. If the security of your systems isn’t a priority, then your data privacy can be at risk, and your staff should be trained to value both.
RESEARCH YOUR AI TOOLS AND HOW THEY WORK
The number of AI tools and applications increases exponentially every month. If a monitoring application uses AI or monitoring results are automatically fed to another application for analysis, how the AI or automation is configured could impact the outcome. Know the public record data that is included and how any AI tools work. When building or configuring automation, consider the variations for public records and that PII may be included as well.
Error rates can have a huge impact. If an AI monitoring tool provides a summary based on a data process with a high error rate, then the summary information will be impacted by that error rate.
WATCH OUT FOR AGGREGATED DATA
Using a monitoring product with a great amount of aggregated data can make it more difficult to understand the source of the data, currency and how AI Is being used. However, if this information isn’t automatically provided for the product that you use, you should be able to ask your provider for the details about the data currency, source and use of AI.
Don’t assume that data is included based on results from just one or a few states, keeping in mind that the same type of public record can be handled differently from state to state.
LOOKING FORWARD TO FUTURE AUTOMATION
AI and other automation tools like optical character recognition (OCR) will continue to become cheaper and more sophisticated. OCR error rates were high when the technology was first introduced. Now OCR is fascinatingly accurate - amazing to contemplate how infinitesimally low the error rates may become and how it can be used in the future, including for public record monitoring. Data that jurisdictions don’t include in their systems can be pulled more accurately than ever from the document images, augmenting monitoring products and automated analysis.
Many opportunities already exist for streamlining operations. Maybe you’re building the automation yourself, or buying some or all of the automation as part of the systems and tools that you use. Today’s applications offer so many kinds of automation, which will only broaden as time passes.
It’s likely that more public record data than ever will be available, with future AI tools helping to aggregate the data and providing increasingly intelligent results that can be used for potential risk analysis. Monitoring integrations that you buy as plug-ins for your core application or build yourself can already be hooked into automation for results processing. This, too, will only become more sophisticated.
At the end of the day, public record monitoring has been an integral part of the industry for decades. Whether you were subscribed to McCords green pages back in the day, or you learned about monitoring on a fully spec’d out AI monitoring platform with all the bells and whistles, knowing what goes into monitoring and how to use it effectively allows for factors to protect their portfolios with more accuracy and efficiency than ever before. These best practices for monitoring, which can be boiled down to understanding the data used and how your automation works, will continue to be core tenets and ensure your company is ready to navigate the new technological frontiers successfully.
About First Corporate Solutions
First Corporate Solutions is a leading provider of integrated UCC due diligence and corporate risk management solutions with 38 years of experience and a commitment to customer service that is unmatched in the industry. Their intuitive FICOSO portal and flexible integrations streamline UCC searches and allow financial professionals to make informed funding decisions and secure their lending with robust UCC filing and monitoring capabilities. FCS is a long-term preferred ally of the International Factoring Association and partners with software providers in factoring origination and underwriting.
The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.