The 2,000-plus page Wall Street and Consumer Protection Act, signed into law in July, remains complex and still unfocused. Regulators now face the task of translating broad mandates into specific rules. But one clear premise permeates the financial reform law: that increased government-mandated transparency and public disclosure regarding the financial sector is essential to prevent future abuses.

This means that management will be saddled with multiple new communications responsibilities and fresh sources of reputation damage.

To help prepare for this new era, we have briefly outlined key provisions with the greatest communications impact, and then reviewed what public relations and investor relations executives should consider doing now to respond.

Key PR/IR Provisions

Heightened Risk Around Unfair Lending Practices – the new Bureau of Consumer Financial Protection gives the federal government broad power to write and enforce rules pertaining to both banks and non-banks. Especially targeted will be “unfair” or “abusive” practices, terms that the American Bankers Association says are “far from clear.” The bureau will also establish a single national toll-free consumer complaint hotline.
Major Incentives for Whistleblowers – the law incentivizes employees through substantial cash bounties to report securities law violations at their place of work. Whistleblowers can receive up to 30% of the monetary sanctions imposed in any SEC enforcement action they initiative totaling at least $1 million.

A Higher Bar on Executive Compensation – shareholders will have the right to a so-called “Say-on-Pay” vote as part of the proxy statement – the ability to publicly register disapproval (non-binding on management) of executive compensation. Public companies must also provide data comparing their executive compensation with historic stock performance and the mean annual compensation of all employees.

New Sources of Potentially Damaging Financial Disclosure – the new Financial Stability Oversight Council, charged with identifying the next big problem in the financial system, will have the power to collect and analyze data and communicate its findings via public reports and annual testimony to Congress.

Hedge Fund Regulation – bank ownership in hedge funds will be severely limited; hedge funds and private equity advisors will be subject to much stricter regulatory and disclosure requirements, including registration with the SEC.

The PR and IR Implications and Responses

New Opportunities for Public Relations and Branding – the reform bill will make public relations and branding more favored marketing techniques at most financial services firms. At the most basic level, the act creates a web of new rules that could trip up any company and plunge it into a reputation crisis. But beyond that, PR will benefit in two ways:

• First, the new regulations will impact profitability at most financial services companies. Wells Fargo, for example, recently announced that limits on overdraft and credit-card fees will cost it $530 million this year. These trends incline executives to favor marketing approaches like public relations, which are at once more cost-effective than national advertising and better suited to the communications challenges spawned by the new regulations.
• Second, provision in the reform bill will lead to a profusion of new products and services in need of brand identities. Open-exchange traded derivatives, for example, could become more mainstream financial products. Restrictions on bank ownership of hedge funds could mean the spin-off of new, independent hedge fund management firms. Each of these will require naming, corporate identity and traditional marketing services.

Grappling with a Litigation Explosion – nearly all observers agree that the reform act – particularly the establishment of the consumer protection bureau – will significantly increase financial firms’ exposure to litigation.

Banks and others should be engaging now in pre-emptive planning now so that its first response to any litigation is not the damaging “no comment.” Has the company prepared clear and succinct public messages about its lending practices? Does it have public spokespersons trained to deliver and defend those messages? Does it understand new media and how to manage its impact? Are internal legal and PR teams prepared to collaborate rather than feud? Does the firm have trusted litigation public relations specialists at its call?

Remember, as BP case reminds us, that public opinion can “convict” a company long before the facts of the case are presented in a formal court of inquiry.

Employees: Allies or Adversaries? – provisions like the whistleblower rules cited earlier represent a wake-up call for internal communicators at every financial institution. Public relations must take the lead in encouraging a culture of compliance where, as one prominent law firm puts it, “all personnel understand that conducting business ethically is a shared and important value.”

Justifying Increases in Fees – Experts predict that the adverse financial impact of reform will compel banks to raise fees on many services. Of course, a lot of PR firepower is presently focused on the fee issue, and this could reach even greater intensity moving forward. Furthermore, banks could find sales of premium services under pressure, services that have fed the bottom line but already carry disproportionately higher fees.

A New World for Investor Relations

The new disclosure requirements create a special set of responsibilities for investor relations professionals – both at financial and non-financial firms.

A Higher Bar on Executive Pay – the new regulations on this issue pose the most significant challenges for IR executives since Sarbanes-Oxley. Here is why.

• The new and previously reviewed mandated disclosures on executive pay mean that media relations around this issue will become even more challenging.
• Shareholders armed with “Say-on-Pay” powers will serve increasingly as de facto evaluation committees for top executives. This means that compensation plans will need to be explained and justified throughout the year, not just during proxy season.
• IR executives need to advise compensation committees regarding provisions in the law that invite the retention of advisors to independently evaluate salary and bonus plans.

IR Executives: Grow or Loose Relevance – the reform act mandates the public disclosure of potentially damaging financial information that will be seized upon non-financial corporate critics. This means that investor relations professionals will be challenged to operate in areas outside their traditional sphere competence – advising management, for example, on messaging and strategies vis-à-vis blogs, tweets and other new media.

Tension within Local Communities – retail banks and insurers will soon find new regulatory agencies scrutinizing sales practices for evidence of discrimination, redlining and other inequities. In addition to stepped up compliance, public relations executives will need to reach out to the low- and moderate-income communities they serve. These may include championing neighborhood revitalization, local sponsorships, employee volunteerism, microfinance lending, college scholarships, financial education and a recommitment to mortgage refinancing.

It is undeniable that financial institutions, and in some cases all public companies, face a new regulatory regime that demands increased transparency, increased disclosure and increased attention to compliance. Each of these issues place PR and IR professionals on the front lines as the organization develops new policies and cultural attributes to respond.