Microsoft Admits Copilot Chat Bypassed DLP Policies, Exposed Confidential Emails

Microsoft has confirmed a significant security lapse in its enterprise AI service, Microsoft 365 Copilot, wherein the Copilot Chat feature systematically ignored Data Loss Prevention (DLP) policies and sensitivity labels, leading to the unauthorized summarization of confidential corporate emails. According to ITmedia, the flaw allowed the AI system to index and process emails stored in users’ sent and draft folders—even those explicitly marked as confidential or restricted by organizational compliance rules—resulting in sensitive content being exposed to AI-driven summarization without proper authorization.

The issue, first detected in late January 2026, has raised alarm among enterprise clients and cybersecurity experts alike. DLP policies are critical components of corporate data governance, designed to prevent the inadvertent or malicious exfiltration of sensitive information such as financial records, intellectual property, and personally identifiable information (PII). By circumventing these safeguards, Microsoft 365 Copilot effectively turned internal compliance mechanisms into mere suggestions, undermining trust in the platform’s security architecture.

Microsoft has since acknowledged the vulnerability and is actively deploying a corrective update to prevent further unauthorized access to restricted content. However, the company has not disclosed the full scope of the incident, including the number of affected organizations, the volume of compromised emails, or whether any data was accessed or retained by third-party systems. No audit logs detailing which emails were summarized or by whom have been made public, leaving enterprises in the dark about potential regulatory exposure or reputational damage.

Industry analysts warn that this incident highlights a broader challenge in the rapid deployment of generative AI within enterprise environments. "Organizations are adopting AI tools for efficiency, but without rigorous integration with existing security controls, these tools become blind spots," said Dr. Elena Torres, a cybersecurity researcher at the Global Data Integrity Institute. "Microsoft’s Copilot was designed to enhance productivity, but this incident shows that AI can become a vector for data leakage if not properly governed."

Corporate IT departments are now scrambling to assess their exposure. Many have temporarily disabled Copilot Chat while awaiting Microsoft’s fix. Some organizations with strict regulatory obligations—particularly in healthcare, finance, and legal sectors—are evaluating whether the breach constitutes a reportable data incident under GDPR, HIPAA, or CCPA regulations.

Microsoft has stated that the issue was not the result of a malicious attack but rather a flaw in how the AI model interacted with Microsoft Exchange Online’s indexing infrastructure. The Copilot Chat service, which relies on content indexing to generate context-aware responses, inadvertently processed emails that should have been excluded based on sensitivity labels and DLP rules. The company claims that the fix, currently in phased rollout, now enforces strict policy compliance before any content is ingested for summarization.

Despite the patch, questions remain about the integrity of data already processed. Microsoft has not committed to deleting summaries generated during the vulnerability window, nor has it offered compensation or audit access to affected customers. This lack of transparency has drawn criticism from privacy advocates and enterprise clients who demand accountability.

As AI becomes embedded in core business workflows, this incident serves as a stark reminder: AI tools are not neutral. Their behavior is shaped by design choices, and when security is an afterthought, the consequences can be severe. Enterprises must demand not just AI innovation, but AI accountability—and Microsoft’s response to this breach will be closely watched as a litmus test for the industry’s commitment to responsible AI deployment.