A managing director in the investment banking division is responsible for supervising a team of analysts and associates. One of the associates fails to follow the firm's procedures for handling MNPI, resulting in an information leak. If the managing director was aware of the associate's pattern of non-compliance but took no corrective action, what is the most likely regulatory consequence for the managing director?

Why B — Failure-to-supervise liability, with possible fines, suspension, or industry bar

Section 15(b)(4)(E) of the Securities Exchange Act and FINRA Rule 3110 impose direct liability on supervisors who fail to reasonably supervise persons subject to their supervision. A managing director who knew of an associate's pattern of non-compliance and failed to take corrective action is particularly vulnerable to a failure-to-supervise charge. Sanctions can be severe, including monetary fines, suspension from supervisory roles, or even a permanent bar from the securities industry, regardless of whether the underlying conduct resulted in trading profits.