Microsoft Enhances Data Loss Prevention in Copilot to Safeguard Sensitive Files
Microsoft has announced a significant enhancement to its Data Loss Prevention (DLP) capabilities within Microsoft 365 Copilot, aiming to prevent the processing of sensitivity-labeled files across all storage locations, including local devices. This update addresses a critical gap in data governance, ensuring that sensitive information remains protected regardless of where it is stored.
Closing the DLP Coverage Gap
Previously, DLP enforcement in Copilot was limited to files stored in SharePoint Online and OneDrive for Business. This limitation left a vulnerability: files stored locally on an employee’s device or accessible via network drives could still be processed by Copilot, even if they contained sensitive information. Recognizing this oversight, Microsoft has extended DLP support to encompass all storage locations, thereby fortifying data protection measures.
Technical Implementation of the DLP Extension
The enhancement revolves around how Copilot’s augmentation loop (AugLoop) retrieves sensitivity label information. Previously, AugLoop relied on Microsoft Graph to detect a file’s label using its SharePoint or OneDrive URL, inherently excluding locally stored files. With the update, Office clients now provide the sensitivity label directly to AugLoop on the client side, eliminating the need for a cloud-based URL lookup. This architectural change ensures consistent DLP policy enforcement, regardless of the file’s storage location.
Impact on Organizations and Administrators
For organizations with existing DLP policies, this update requires no additional configuration. The expanded enforcement scope will automatically apply to all relevant files, maintaining the integrity of current policies. Administrators should review existing sensitivity-label-based restrictions and update internal documentation to reflect the broader coverage. Communication with security and compliance teams is also recommended to ensure awareness of the enhanced DLP capabilities.
Rollout Timeline and Licensing Requirements
Microsoft has scheduled the rollout of this update to begin in late March 2026, with completion expected by late April 2026. Organizations utilizing Microsoft 365 Copilot should note that a Microsoft 365 Copilot license, paired with a Microsoft 365 E5 license or equivalent, is required to fully leverage this DLP feature. This update does not alter Copilot’s core functionality but strengthens the governance boundary around content access and processing.
Broader Context: Enhancing AI Security Measures
This enhancement is part of Microsoft’s ongoing efforts to bolster security within its AI-powered tools. In recent months, several vulnerabilities have been identified and addressed:
– Copilot Agent Policy Flaw: A flaw allowed certain Copilot Agents to remain installable despite global policy restrictions, potentially exposing sensitive data. ([cybersecuritynews.com](https://cybersecuritynews.com/microsoft-copilot-agent-policy-flaw/?utm_source=openai))
– Copilot Prompt Injection Vulnerability: A vulnerability enabled attackers to exfiltrate sensitive data through indirect prompt injection attacks, exploiting AI assistant integrations. ([cybersecuritynews.com](https://cybersecuritynews.com/copilot-prompt-injection-vulnerability-2/?utm_source=openai))
– Zero-Click Vulnerability: Dubbed EchoLeak, this flaw allowed attackers to exfiltrate sensitive organizational data without user interaction, highlighting the need for robust security frameworks in AI applications. ([cybersecuritynews.com](https://cybersecuritynews.com/zero-click-microsoft-365-copilot-vulnerability/?utm_source=openai))
These incidents underscore the importance of continuous monitoring and enhancement of security measures in AI-driven tools.
Conclusion
Microsoft’s extension of DLP support in Copilot represents a significant step forward in data protection, ensuring that sensitive files are safeguarded across all storage locations. Organizations are encouraged to review their current DLP policies and stay informed about ongoing security updates to maintain a robust defense against potential vulnerabilities.
