Last reviewed: 2 November 2026; Anthropic section updated 13 November 2026. You can run Microsoft 365 Copilot in a GDPR-compliant way, but only if you complete eight specific measures before go-live. Without that preparation, Copilot surfaces data that should stay protected. Typical causes are overly broad SharePoint permissions, a works council that was never involved and admin settings that allow AI processing outside the EU. This Microsoft 365 Copilot GDPR checklist shows which steps you must complete before the first productive use. It also shows which frequently quoted obligations are less clear-cut than they sound.
We wrote this checklist for companies operating in Germany, where works council co-determination and strict data protection authorities add requirements that most US guides skip. AURUM GmbH, a Microsoft Solutions Partner in Nuremberg, supports mid-sized companies with exactly this preparation. If your data must not leave your own environment, we also assess private and local AI options (German page).
What changed recently: key updates for 2026
In 2026, the AI Act deadlines moved, Microsoft issued a new DPA and changed several Copilot admin defaults. We checked every point against primary sources on 2 November 2026:
- EU AI Act: the “Digital Omnibus”, Regulation (EU) 2026/1744, was published on 24 July 2026 and entered into force on 27 July 2026. High-risk obligations under Annex III now apply from 2 December 2027 instead of 2 August 2026 (Annex I: 2 August 2028).
- Anthropic models: until early December 2026 they run outside the EU Data Boundary. Microsoft then moves them inside it and, from 9 December 2026, enables them in EU and EFTA tenants without a selection (see step 3).
- Microsoft DPA: the current English version of the Data Protection Addendum is dated 1 November 2026.
- Restricted SharePoint Search: new enablement has been blocked since 31 July 2026; Microsoft points to Restricted Content Discovery instead.
- Purview retention: Copilot prompts and responses are stored in a hidden folder in the user’s Exchange mailbox, with their own retention location.
First: which Copilot are we talking about?
There are three Copilots with different data protection rules. Much of the confusion in GDPR discussions comes from mixing up these product names:
- Microsoft 365 Copilot: the paid add-on licence. Only this version accesses your organisation’s e-mails, files, Teams chats and meetings through Microsoft Graph. Everything in this checklist refers to this product.
- Microsoft 365 Copilot Chat: included in many Microsoft 365 licences. By default it works with web data and has no automatic access to SharePoint or Exchange content. The same enterprise data protection commitments apply, but the permissions question looks different.
- Copilot Studio: the platform for your own agents, licensed and governed separately.
If your data protection impact assessment or works council paper simply says “Copilot”, it describes three different processing operations. Our comparison Copilot Business vs Enterprise explains which licence fits your company.
Is Microsoft 365 Copilot GDPR compliant?
Companies can use Microsoft 365 Copilot in a GDPR-compliant way, but it depends on configuration. Microsoft added Copilot as a covered workload to the data residency commitments in its Product Terms on 1 March 2024, and Copilot is an EU Data Boundary service. For EU customers, Microsoft processes and stores prompts, responses and data retrieved through Microsoft Graph in the EU. Microsoft also states that it does not use prompts, responses or Graph data to train foundation models (Microsoft: data, privacy and security for Copilot).
Microsoft documents three exceptions that companies regularly overlook:
- Web grounding via Bing: the EU Data Boundary does not apply to the generated search queries, and Microsoft acts as controller for them. Admins can switch off web access in the admin center (Microsoft: public web access).
- Anthropic models: currently excluded from the EU Data Boundary (see step 3).
- Flex routing: allows AI inference outside the EU at peak load (see step 2).
What German regulators say
The Hessian Commissioner for Data Protection (HBDI) published a 137-page report in November 2025. It concludes that Microsoft 365 can be operated in compliance with data protection law if specific technical and organisational measures are in place. The report is not a formal approval. It is the assessment of one state authority and relies heavily on Microsoft’s contractual commitments. It reviews the core Microsoft 365 services and does not assess Copilot. The critical 2022 position of the German Data Protection Conference (DSK) has, as far as published, not been formally revoked. For your own records, the HBDI report is a strong argument but no substitute for your own assessment (HBDI press release, in German).
The 8-step Microsoft 365 Copilot GDPR checklist
A GDPR-compliant Copilot rollout rests on eight steps. Three are technical tenant settings, two concern Purview and permissions, and three are legal and organisational: works council, DPIA and contracts. Complete all eight before you assign licences to the first productive users.
- Clean up SharePoint permissions
- Review and switch off flex routing
- Check the Anthropic model settings
- Involve the works council early
- Run a threshold assessment and, usually, a DPIA
- Configure Microsoft Purview correctly
- Document AI literacy under the EU AI Act
- Settle the DPA, privacy notices and retention
Step 1: Clean up SharePoint permissions
Copilot can access all content a user has at least read access to. That includes SharePoint sites with old “Everyone except external users” shares. Copilot exposes permissions that someone granted generously years ago: the assistant finds and quotes documents nobody meant to share any more.
Use the Data Access Governance reports in SharePoint Advanced Management to find over-permissioned content. SharePoint Advanced Management becomes available with Microsoft 365 Copilot licences; check the current prerequisites, because some reports need additional licensing. Our SharePoint consulting (in German) covers this cleanup. Then enable Restricted Content Discovery for sensitive sites. It hides individual sites from organisation-wide search and Copilot without changing permissions. Users with direct access can still open the content. Treat it as a transition measure during rollout, not a permanent fix.
Step 2: Review and switch off flex routing
Flex routing (officially “Flex routing (EU and EFTA)”) allows Microsoft to run Copilot inference outside the EU Data Boundary during peak load, in the US, Canada or Australia. Legally, this is a transfer to a third country under Art. 44 et seq. GDPR. Microsoft relies on the EU-US Data Privacy Framework and standard contractual clauses. For regulated sectors such as tax advice, healthcare or financial services, that may not be enough in a given case.
Microsoft switches flex routing on by default for eligible tenants created after 25 March 2026. For older tenants, the default depends on the relevant Message Center notice, so check the setting either way. To switch it off with the AI Administrator role, go to Microsoft 365 admin center → Copilot → Settings → View all → “Flex routing during peak load periods” → “Do not allow flex routing”. The Power Platform admin center setting follows this choice unless it is set more restrictively. Even with flex routing off, Microsoft may store limited pseudonymised data outside the EU Data Boundary for security and operational reasons. Document the decision for your data protection officer (Microsoft: flex routing).
Step 3: Check the Anthropic model settings
Anthropic is integrated as a Microsoft subprocessor and provides models for Copilot features. Microsoft states clearly that Anthropic models are currently excluded from the EU Data Boundary (Microsoft: AI subprocessors).
For tenants in the EU, EFTA and UK, the global setting “AI providers operating as Microsoft subprocessors” defaults to “No users”, so an opt-in is required. The exception to check: on 3 April 2026 Microsoft introduced a separate setting for Copilot in Word, Excel and PowerPoint with Anthropic models. It is on by default for EU, EFTA and UK tenants created after 25 March 2026 (Microsoft: Anthropic models in Microsoft 365 apps). Check both settings under Copilot → Settings → View all.
Update 13 November 2026: Microsoft announced on 5 November 2026 that Claude models in Copilot move inside the EU Data Boundary in early December 2026. According to Message Center notice MC1546438, Microsoft then enables Claude on 9 December 2026 for EU and EFTA tenants that have made no selection. The option for Microsoft 365 apps only is retired and switched to all users. If you do not want Claude, choose “No users” or specific groups before that date. Models with data retention are not part of this change. Our Claude GDPR guide compares all routes to Claude, from claude.ai to Amazon Bedrock.
A third case is “Anthropic models with data retention”. Here Anthropic acts under its own terms and keeps inputs and outputs for up to 30 days. These models are off by default in all regions and should stay off in a GDPR-sensitive environment.
Step 4: Involve the works council early
Companies with a works council (Betriebsrat) must not introduce Copilot without its co-determination. Section 87(1) no. 6 of the German Works Constitution Act (BetrVG) applies as soon as a technical system is objectively capable of monitoring employee behaviour or performance. Under long-standing Federal Labour Court case law (BAG, 9 September 1975, 1 ABR 20/74), the employer’s intention does not matter. Features such as Intelligent Recap with speaker and action-item detection meet this test.
A point many guides miss: the law requires co-determination, not necessarily a works agreement. An informal arrangement can be enough; without agreement, a conciliation committee decides. In practice, companies almost always aim for a works agreement (Betriebsvereinbarung), because only it applies directly to employment relationships. A labour court can stop a rollout without any involvement by injunction.
Three AI-specific rules from 2021 apply directly. Under section 80(3) BetrVG, an external expert for assessing AI is deemed necessary, at the employer’s cost. Section 90 requires timely information and consultation on AI in work processes. Section 95(2a) extends co-determination to AI-supported selection guidelines (§87 BetrVG, §80 BetrVG). An existing Microsoft 365 works agreement usually does not cover Copilot automatically and needs an amendment.
Step 5: Run a threshold assessment and, usually, a DPIA
The GDPR does not automatically require a data protection impact assessment (DPIA) for every Copilot deployment. It first requires a documented threshold assessment under Art. 35(1) GDPR. No German DSK “must” list names Copilot.
In practice the result rarely changes. Copilot combines and evaluates a user’s e-mails, calendar entries, chats and documents. It therefore regularly meets several criteria, such as linking data from different sources and processing employee data with new technology. The threshold assessment almost always leads to a DPIA. What matters for your records is the reasoning, not only the result. Microsoft provides “Build your own” DPIA templates for Microsoft 365 Copilot in the Service Trust Portal. They give structure and Microsoft’s processing details, but they do not replace your own assessment.
Step 6: Configure Microsoft Purview correctly
Microsoft Purview is the central control tool, but it does not control what many people assume. The primary control for Copilot access is the permission model of SharePoint, Exchange and Microsoft Graph. A sensitivity label restricts access only if it applies encryption with usage rights, in particular the EXTRACT right alongside VIEW. Labels without encryption do not block Copilot. Introducing labels as access protection without encryption creates a feeling of security without the effect.
Two measures belong before rollout. First, a sensitivity label taxonomy with a deliberate decision on which labels encrypt. Second, a DLP policy for the location “Microsoft 365 Copilot and Copilot Chat” with the condition “content contains sensitivity labels”. It excludes labelled documents from Copilot answers without blocking the file itself (Microsoft: DLP for Copilot). The guided entry point is Data Security Posture Management for AI in the Purview portal. Our cloud security consulting (in German) includes this setup. In our Microsoft 365 projects, a Purview baseline with labels, DLP and a first test rollout typically takes 2 to 3 working days.
Step 7: Document AI literacy under the EU AI Act
Article 4 of the EU AI Act has applied to providers and deployers of AI systems since 2 February 2025. The Digital Omnibus softened it: companies must take measures to support the development of AI literacy, but need not guarantee a specific level. The law requires no certification. For Copilot, that means training on prompting, on the data being processed and on when outputs need human review, plus simple evidence of that training (Regulation (EU) 2026/1744).
A general writing and research assistant is usually not a high-risk system. Annex III no. 4 covers AI systems intended for recruitment, promotion, termination, task allocation or performance monitoring. If you build a Copilot Studio agent that pre-sorts applications or evaluates performance data, assess the classification seriously. The transparency obligations of Article 50 have applied since 2 August 2026. For typical internal use, their relevance is limited; for AI-supported marketing and press work, it is not.
Step 8: Copilot GDPR paperwork: DPA, privacy notices and retention
Microsoft’s Data Protection Addendum (DPA) serves as the processing agreement under Art. 28 GDPR and covers Microsoft 365 Copilot. You do not need a separate contract: the DPA terms apply with the Microsoft Product Terms or the Microsoft Customer Agreement. The current English version is dated 1 November 2026 (Microsoft DPA). Check which version governs your contract and whether the subprocessor list fits your approval practice. Also update the employee privacy notice under Art. 13/14 GDPR.
Many companies document retention wrongly. Prompts and responses are not in the audit log. Microsoft stores them as individual messages in a hidden folder in the user’s Exchange mailbox. The unified audit log only records metadata such as time, user and referenced files. For deletion periods, configure a retention policy with the dedicated location “Microsoft Copilot experiences”. Newly created policies treat it as a separate location, so you must add it deliberately (Microsoft: retention for Copilot).
Common mistakes in Microsoft 365 Copilot GDPR projects
The most frequent mistake is the reversed order: buy licences, switch Copilot on, then sort out compliance. IT then corrects admin settings afterwards, the works council negotiates under time pressure and someone writes the DPIA while Copilot is already live. We regularly find Copilot already in use when we start a compliance review.
Second, sensitivity labels are missing, inconsistent or unencrypted and therefore protect nothing. Third, Copilot suddenly surfaces legacy SharePoint shares from 2018 to 2022 as knowledge sources. Without the Data Access Governance report, most companies do not know how many there are. Fourth, some companies treat Copilot as a high-risk AI system as a precaution. That creates documentation work the law does not require for a general productivity assistant and distracts from the obligations that actually apply.
How AURUM helps with Copilot and GDPR
AURUM GmbH supports companies in Germany and the DACH region through all eight steps. As a Microsoft Solutions Partner with a focus on cloud security and identity, we handle the technical groundwork: SharePoint permission analysis, admin settings for flex routing and Anthropic models, Purview labels and DLP, plus support for the threshold assessment, DPIA records and works agreement.
Our entry point is a half-day Copilot Readiness Check. It shows which permissions need cleaning up, how your tenant settings for processing outside the EU are really set and what is missing in Purview. More details are on our Microsoft Copilot consulting page (in German) and in our English services overview.
Frequently asked questions about Microsoft 365 Copilot and GDPR
Not without active configuration. Microsoft commits to EU processing and no model training with customer data. Exceptions are Bing web search queries, Anthropic models and, with flex routing on, AI inference at peak load. Flex routing is on by default in tenants created after 25 March 2026. You also need permission cleanup, Purview configuration and your own threshold assessment.
You need the works council’s co-determination under section 87(1) no. 6 BetrVG, because Copilot is objectively capable of monitoring behaviour and performance. Legally, a works agreement is not the only option; an informal arrangement or a conciliation committee ruling also works. In practice, companies aim for a works agreement because only it applies directly to employment relationships.
Mostly. Copilot is an EU Data Boundary service, so prompts, responses and Graph data are processed and stored in the EU. Three exceptions apply: Bing search queries, Anthropic models (until early December 2026) and flex routing at peak load. Switch off what you do not need in the Microsoft 365 admin center and document the decision.
More questions about Copilot data protection
A documented threshold assessment under Art. 35(1) GDPR is mandatory first. Because Copilot combines e-mails, calendars, chats and documents, it regularly meets several high-risk criteria, so the assessment almost always leads to a DPIA. Document the reasoning, not only the result. Microsoft provides “Build your own” DPIA templates.
Anthropic is a Microsoft subprocessor. Until early December 2026 it is excluded from the EU Data Boundary; Microsoft then moves Claude processing inside it. In the EU, EFTA and UK, the global subprocessor setting defaults to “No users”. The separate setting for Word, Excel and PowerPoint is on by default in EU tenants created after 25 March 2026. Check both settings in the Microsoft 365 admin center. From 9 December 2026, Microsoft enables Claude in EU and EFTA tenants without a selection.
Bottom line: Copilot and GDPR work with the right preparation
Microsoft 365 Copilot is not a data protection risk if your company does the groundwork first. The eight steps, from SharePoint cleanup and tenant settings to works council and DPIA, create the necessary basis. Equally important is proportion: not every quoted obligation applies, and the high-risk deadlines are later than many assume. Work through the steps that do apply, and Copilot can go live with clean documentation and no rework under time pressure.