New DLP Update Stops Copilot From Reading Sensitive Office Files

Microsoft is expanding DLP controls to block Microsoft 365 Copilot from processing confidential files, following a recent email summarization issue that raised privacy concerns.

Microsoft expands DLP protections for Microsoft 365 Copilot

After a bug allowed Microsoft 365 Copilot to summarize confidential emails, the company is tightening its data protection rules across Office apps.

According to Bleeping Computer, Microsoft will expand Data Loss Prevention (DLP) enforcement to prevent Copilot from accessing restricted Word, Excel, and PowerPoint documents.

The new safeguards will apply regardless of where the file is stored, including local devices, SharePoint, and OneDrive. This marks a major shift from the previous limitation, where Purview DLP policies only enforced restrictions on files hosted in SharePoint and OneDrive.

Client-side sensitivity label detection

Microsoft will deliver the enhancement through the Augmentation Loop (AugLoop) Office component between late March and late April 2026.

Once deployed, Copilot will no longer read or process documents labeled as restricted under existing DLP policies. The system will enforce protections automatically for organizations that already block Copilot from accessing sensitivity-labeled content.

The update requires no administrative action for eligible tenants.

Instead of relying on Microsoft Graph and SharePoint or OneDrive URLs to detect labels, Office clients and AugLoop will now read sensitivity labels directly from the file on the client side. This change ensures consistent enforcement across both cloud and locally stored documents.

By shifting label detection to the client level, Microsoft closes a key enforcement gap and strengthens protection for confidential corporate data.

While Microsoft tightens controls, it continues to expand Copilot integrations across its ecosystem.

The company has started rolling out Copilot Notebook auto summary and recently unveiled Ask Copilot integration inside File Explorer on Windows 11, signaling that AI features remain central to its broader strategy even as compliance safeguards increase.