Microsoft expands Microsoft 365 Copilot data controls and cross-product data access settings

Microsoft is tightening and clarifying how Copilot can access and process user and organizational data across the Microsoft ecosystem. Microsoft is expanding Purview Data Loss Prevention (DLP) enforcement so policies that block Copilot from processing restricted/sensitivity-labeled content will apply not only to files in SharePoint and OneDrive, but also to locally stored Word, Excel, and PowerPoint documents. The change is planned for deployment via the Augmentation Loop (AugLoop) Office component between late March and late April 2026, and is expected to be automatically enabled for organizations already configured to block Copilot from processing labeled content; Microsoft says the update works by allowing the Office client/AugLoop to read sensitivity labels directly rather than relying on Microsoft Graph calls tied to SharePoint/OneDrive URLs.

Separately, a Copilot “Memory” setting labeled “Microsoft usage data” has been reported as enabling Copilot to reference data from other Microsoft products (including Bing, MSN, and Edge) to personalize conversations, with an option for users to disable it if they have privacy concerns. A third, unrelated Microsoft 365 issue—an acknowledged bug in classic Outlook that can cause the mouse pointer to disappear—does not materially relate to Copilot data access or DLP controls and appears to be a usability defect rather than a security event.