Assessing Microsoft Copilot: Data protection and compliance

In recent years, we have observed a growing interest in AI functionalities across various entities, including small businesses, large corporations, and even public administrations. Organisations are continuously seeking ways to optimise their processes, and these functionalities are increasingly seen as valuable opportunities to support that goal. One of the most widely adopted AI technologies are those provided by Microsoft. In fact, according to Microsoft, more than 85% of Fortune 500 are using Microsoft AI.  Moreover, in 2024, the Government Digital Service (GDS) in UK initiated a trial to evaluate the capabilities of commercial AI tools. As a result, GDS coordinated a cross-government pilot of Microsoft 365 Copilot, engaging 20,000 public sector employees. Licences were allocated proportionally to reflect the distribution of public sector staff across departments. One of the key findings of this pilot was to discover that trial participants saved an average of 26 minutes a day when using Microsoft 365 Copilot.

This article highlights the different versions of Copilot and examines a few key issues when assessing the tool, from a data protection perspective. We also provide links to resources for deployers in support of effective implementation of these tools, in order to help on ensuring data protection compliance while deploying these functionalities.  We note that these links, along with their associated content, are subject to regular updates.

The advice in this post is broadly applicable to all entities using Microsoft services. However, we note that minor variations may apply to public administrations, based on their specific contractual arrangements with Microsoft. We think the resources referenced herein will be useful to these entities, as they include links to materials that are commonly cited by Microsoft within contractual documentation.

Understanding the various Copilot offerings

In the words of Microsoft: “Copilots are chat-based generative AI interactions from Microsoft. They have specialized functionality based on their users and use cases. Some Copilots are experienced standalone, while others are integrated into Microsoft products, services, and devices. Included in this portfolio is Microsoft Copilot, Microsoft 365 Copilot, Microsoft Security Copilot, among other generative AI solutions and experiences”. The below table offers an overview of two of these tools: Copilot Chat and Microsoft 365 Copilot and offers some clarity regarding the distinctions between these two functionalities.

Engaging with the materials and guidance provided by Microsoft

Organisations should be aware that Microsoft occasionally uses the generic term "Copilot" across its official resources and documentation. This can create ambiguity when determining whether the information provided applies universally to all Copilot products or only to specific functionalities. Below we present an overview of frequent challenges (issues) and elected resources that may be of use when assessing and implementing Copilot.  We note that this is not an exhaustive list, and additional relevant materials are available, depending on the organisation’s specific needs and context.

First, it is clear that a detailed technological understanding is required when organisations decide to implement any of the Copilots. We would advise undertaking comprehensive review of their current Microsoft 365 environment configurations. This review should include the evaluation and, where necessary, adjustment of existing settings to ensure compatibility with Microsoft Copilot services. These adjustments are essential to enable Copilots to function effectively and to process data, including personal data, in accordance with organisational policies and compliance requirements.

Issue 1: Limited awareness of the applicable privacy/ data protection safeguards for Copilot

It is important to consider that the existing privacy controls for connected experiences in Microsoft 365 Apps can affect the availability of Microsoft 365 Copilot features. For example, in our understanding, Microsoft 365 Copilot interactions would be governed by Microsoft 365 existing access controls in place at the organisation. It is therefore essential to ensure internal readiness before proceeding, as any initiative to introduce Copilot will likely necessitate a comprehensive (re)assessment of the organisation’s information management practices. This will also support the identification and resolution of any underlying issues, thereby contributing to a more robust and compliant implementation process.

Useful resource: Existing Microsoft Privacy Controls

Issue 2: Difficulty in preparing the user-facing data protection notice.

The Microsoft Privacy Statement contains information that should be considered in all cases, whether an individual is using the services in a personal capacity (personal Microsoft account) or within the infrastructure established by their organisation (Microsoft organisational account). Moreover, if any organisation uses Microsoft services, the section: Products provided by your organisation – notice to end users of the Microsoft Privacy Statement would be helpful. This resource can be used to adjust the organisation’s data protection notice. For example, it outlines who controls and administers the use of Microsoft products (including the user’s Microsoft account) and the related privacy settings, and who may access and process the user’s data—such as diagnostic data, and the content of the user’s communications and files.

Useful resource: The Microsoft Privacy Statement

Issue 3: Challenges in understanding web search operations, data protection roles, and transfer implications.

First, we need to understand how the web search functionality  works.  In this regard, we must consider that when web search is enabled, Microsoft 365 Copilot and Copilot Chat may retrieve information from the Bing search service. Therefore, Microsoft 365 Copilot and Copilot Chat can identify parts of a user’s request where additional information from the internet would enhance the response. In such cases, it appears that both Copilots formulate a relevant search and retrieves supporting content from the Bing search service.

The Bing search service operates separately from Microsoft 365 and has different data-handling practices; for example, Microsoft would act as a data controller when handling web query data, and furthermore, the EU Data Boundary doesn’t apply to generated search queries. Organisations can control access to web search by using the Allow web search in Copilot policy. This policy is applicable to both Microsoft 365 Copilot and Copilot Chat, and it allows for turning on or off web search for users across the tenant. Access to this policy is available in the Cloud Policy Service for Microsoft 365. If the organisation does not configure this policy, web search will be, by default, available to users in both Microsoft 365 Copilot and Copilot Chat, unless the organisation has set the “Allow the use of additional optional connected experiences” in Office policy to “disabled”.

Therefore, in our interpretation, if web search is disabled by the organisation, Microsoft 365 Copilot and Copilot Chat will provide a response, but without current web information. In our understanding, disabling web search functionality will result in the inability to access real-time data or retrieve up-to-date information from online sources during the use of any of the Copilots. Furthermore, it seems that, at this moment, when accessing Copilot Chat without signing in, users do not have access to any manual configuration options to enable or disable the web search feature within the chat interface.

Issue 4: Complexity in understanding the processing of diagnostic data, including required service data

As Microsoft explains, diagnostic data is collected and sent to Microsoft through the Office client software running on the user's device. Organisations are able to use a policy setting to choose which level of diagnostic data is sent to Microsoft although, even if the organisation chooses “neither”, required service data will be sent from the user's device to Microsoft. Required service data, which is information that, according to Microsoft, they need to collect and process to ensure that its services, particularly Microsoft 365 apps, function securely, remain up to date, and perform as expected, is generated when the users interact with Microsoft 365 apps, including Microsoft 365 Copilot.

We note that users will not be able to change the diagnostic data level for their devices if they are signed in to Office with their organisational credentials. Therefore, operationally, this setting remains fully under the organisation’s control. The Diagnostic Data Viewer can be used to see which diagnostic data is being sent to Microsoft.

Useful resource: Diagnostic Data

Key Takeaways and recommendations

Considering the above and given the dynamic nature of Copilot and its associated services, it is essential that organisations regularly consult the official Microsoft documentation and guidance. These resources are frequently updated to reflect, among others, changes in configuration requirements and privacy controls. Furthermore, this must be coordinated with an internal review of the Microsoft 365 configurations applied by the organisation. Ensuring that the Microsoft 365 existing environment is properly structured prior to implementing these functionalities is a critically important step.

Trilateral’s Responsible AI Services Team  have extensive experience supporting organisations to comply with their AI and data protection obligations and assess any risk relating to these. They will assist you to get ready to develop and deploy compliant and responsible AI solutions. Please feel free to contact our advisors, who would be more than happy to help.