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4 min read

The Hidden Privacy Risk in Microsoft Copilot

by Dexal LLC

Microsoft Copilot is convenient — but for businesses handling confidential data, there are privacy trade-offs worth understanding before you roll it out.

The Hidden Privacy Risk in Microsoft Copilot

Microsoft Copilot is being rolled out across businesses fast — bundled into Microsoft 365, embedded in Word, Excel, Teams, and Outlook. If your business already pays for Microsoft 365, you may have already been offered it or had it switched on by default. Before you or your staff start using it for real work, there are a few things worth understanding about where your data actually goes.

How Copilot works — and what that means for your data

Microsoft Copilot for Microsoft 365 works by sending content from your documents, emails, and Teams messages to Microsoft's Azure OpenAI Service — a version of OpenAI's models hosted on Microsoft's cloud infrastructure. Microsoft has made commitments that enterprise customer data won't be used to train the underlying OpenAI models, and their enterprise agreements include data processing terms. Those are meaningful protections compared to the consumer version of ChatGPT. But here's what those protections don't change: your data is still leaving your building and being processed on external servers. Microsoft can see it (for security and compliance purposes). Azure infrastructure runs it. And if there's ever a breach, misconfiguration, or policy change, your data is in scope.

The specific risks for regulated industries

For most businesses using Microsoft 365 for general productivity, the Copilot data practices are probably fine. But for businesses in regulated industries, the picture is different: Legal practices — Privilege doesn't disappear because a document went through a cloud service, but explaining to a client (or a bar association) that their privileged communications were processed by a third-party AI is an uncomfortable conversation. Healthcare — HIPAA-covered entities need a Business Associate Agreement (BAA) with any vendor handling protected health information. Microsoft does offer a BAA for certain Microsoft 365 configurations, but it requires careful setup — and many practices are using Copilot without confirming this is in place. Accounting and finance — Client financial data, tax records, and strategic plans are exactly the kind of information that's attractive to attackers and sensitive under professional obligations. HR — Employee records, compensation data, performance reviews. If Copilot in Outlook is summarising HR emails, that content is being processed externally.

"But we trust Microsoft — they're a big company"

Microsoft is trustworthy in the sense that they're a large, well-resourced company with strong security practices. That's not really the question. The question is whether your clients and your regulators are comfortable with their information being processed in a third-party cloud environment — even a well-secured one. For many businesses, the answer is yes, and Copilot is a fine tool. For businesses where the answer is no — or where the answer needs to be documented — a private AI is a better fit.

What the alternative looks like

Dexal's platform is fully managed and runs without AI by default — your team gets messaging, files, and tasks without any data going through a third-party AI vendor. When you do want AI, it's an optional add-on that's never used to train any model. Organizations with stricter requirements can scope a self-hosted option through Enterprise.

The bottom line

Microsoft Copilot is a genuinely useful product. For businesses without strict data residency or confidentiality requirements, it may be a perfectly good choice. If your work involves client confidentiality, regulatory obligations, or data your clients expect you to keep private — it's worth at least understanding what you're trading off before enabling it for your whole team. --- If you want to understand whether Dexal would be a better fit for your business, <a href="/contact">get in touch</a>. No obligation — we'll give you an honest assessment.

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