Skip to content
Contact Us

Microsoft 365 Copilot: Security Risks and How to Protect Data

Complete Enterprise Safety Guide 2025

Think Microsoft 365 Copilot is secure by default? Think again. This blog uncovers where the real risks lie and how to protect sensitive data while getting the most from Copilot.

By Priya Gupta
By Priya GuptaOcto 13, 2025
  • 8 min read

Table of Contents

Microsoft Copilot Security Insights

Microsoft Copilot Security Insights

Nearly 70% of Fortune 500 companies have already adopted Microsoft 365 Copilot . But the rollout hasn’t been without challenges. Around 80% of business leaders report concerns that Copilot could expose sensitive information. Reflecting such concerns, both governments and enterprises have begun taking precautionary steps. In March 2025, for example, the U.S. Congress banned its staff from using Microsoft Copilot due to concerns that it could leak congressional data to unauthorized cloud services.

These examples show that while Copilot is a powerful productivity tool, it also introduces significant security risks that businesses must address.

How Does Microsoft Copilot Actually Work and How Do Potential Security Risks Arise?

What is Copilot?
Copilot is a personal assistant embedded across the Microsoft ecosystem. It responds to questions in natural language and, in simple terms, acts as the user interface for AI. Copilot is integrated into nearly every Microsoft application, including Word, Excel, PowerPoint, and Outlook, as well as other parts of Microsoft 365.

Beyond standard applications, Copilot also serves as a platform for custom agents and accessibility. It includes built-in tools to measure AI’s impact and track return on investment.

How Does Microsoft Copilot Actually Work?

When you use Copilot, you start with a device and app, whether Word, Excel, Teams, Outlook, or PowerPoint.

  • You enter a prompt, which is sent to Microsoft Copilot.
  • Copilot connects to Microsoft Graph, the API layer that manages your data.
  • Microsoft Graph verifies your identity and permissions, then retrieves information from sources like your mailbox, OneDrive, Teams, or SharePoint.
  • That data is passed to a large language model (LLM). The LLM isn’t trained on your data; it simply uses it to generate a response, which is then returned to you through Copilot.
For example, if you ask, “What was the last email from person X?” Copilot routes the request through Microsoft Graph, which checks your access, retrieves the email, and passes it to the LLM. The LLM creates a response, and Copilot displays the result.

Read About How to Successfully and Strategically Adopt Microsoft 365 Copilot for Your Business ->

How Do Potential Copilot Security Risks Arise?

At first glance, it might seem as if there are no security risks. After all, Microsoft Graph ensures that Copilot only works with the data you’re already permitted to access. It doesn’t go beyond your existing permissions and only surfaces information from your account and your files. But this is exactly where the challenge lies: if permissions are too broad, Copilot will still expose that data. In other words, Copilot itself isn’t the risk; misconfigured permissions are.

For Example,

  • You might have access to two files when you should only have access to one.
  • The copilot will follow the rules and show both.
  • But the real issue is the extra permission that was granted in the first place.

This is where the actual risks emerge.

What Security Features does Microsoft offer?

Microsoft 365 Copilot is built on trust, and Microsoft provides strong commitments and controls to maintain security, including:

  • Protecting data at rest and in transit
  • Ensuring you retain control of your data
  • Guaranteeing that your data is not used to train foundational models (LLMs)
  • Protecting against AI-related security and copyright risks

While Microsoft secures the platform, permissions, and governance are our responsibility.


Download Your Complete Microsoft 365 Copilot Readiness Checklist ->

What Are the Top Microsoft Copilot Security and Governance Concerns?

Despite Copilot’s built-in protections, several security risks remain significant for enterprise data:
  • Oversharing
  • Insider risk and Data loss
  • Governance of AI Use
  • Shadow AI Risks

Research shows that around 80% of business leaders cite data oversharing and leaks as their top concerns with generative AI. In fact, many organizations have restricted or banned AI tools like ChatGPT because employees entered sensitive information into them. Preventing risky AI use, such as entering sensitive queries, is a key governance challenge. This highlights why visibility and control are essential. Organizations must know
  • Where data is being used.
  • Which apps and tools are processing it.
  • And have the ability to block or limit access when necessary.

Let’s consider an example:

  • Bob, an employee, has access to a SharePoint site.
  • With Copilot, he asks a question about his salary.
  • Copilot checks his permissions, retrieves results from SharePoint, and points him to a library that contains salary information.
  • When Bob opens the file, he discovers not only his salary but also salary details for all employees.


This happened because permissions on that SharePoint library were never updated. What should have been restricted to HR staff was left open to a broader audience, creating an oversharing risk.

Oversharing doesn’t only expose sensitive information, but it can also lead to insider threats. In this case, Bob might decide to share salary files with others in the organization, or even externally, simply because he has the permission to do so.

In short, the biggest concerns around generative AI in the enterprise aren’t about Copilot itself, but about permissions, oversharing, and insider risk.


Learn How to Deploy Copilot Safely with a Simple and Strategic Framework ->

Microsoft Copilot Security Risk: Oversharing

What is Oversharing?

Copilot only accesses data that a user is authorized to view. In Bob’s case, he had permission to see information beyond what was necessary for his role, so Copilot returned it. That’s oversharing. When someone has access to more data than they need.

What causes oversharing?

  1. Broad access permissions – A user saves a sensitive file in a location with open access. For instance, Mary from HR writes an HR document but accidentally saves it in the Sales SharePoint site, which everyone can access.

  2. Unintended or deliberate sharing – A user shares content with people who shouldn’t have access.

  3. Lack of access protection – If documents aren’t labeled as sensitive or confidential, nothing prevents them from being exposed.

How can you mitigate oversharing?

The first step is to identify sensitive sites and files. Next, check which ones are broadly shared across the organization or multiple departments. Then, ask: Do all these groups really need access?

From there, assess risk:

  • If a site contains credit card numbers and is accessible by the whole organization, that’s high risk.
  • If 575 users accessed it in the last week, the urgency is even higher.

Remediation steps:

  • Revoke organization-wide access.
  • Restrict access only to the people who need it (e.g., Finance in the credit card example).
  • Reduce exposure by ensuring only relevant users can access the data.

Best practices:

  • Avoid organization-wide site access unless absolutely necessary.
  • Set up alerts and notifications for oversharing events (e.g., if a site is suddenly shared org-wide).
  • Apply sensitivity labels and DLP (Data Loss Prevention) policies to sensitive files.
  • Improve Copilot responses by archiving, deleting, or excluding unnecessary content.


By proactively managing permissions and monitoring for oversharing, you can significantly reduce the risk of sensitive data exposure.

Microsoft Copilot Security Risk: Data Loss and Insider Risk

What is data loss?

It’s the unsafe or inappropriate sharing, transfer, or use of confidential content. When this happens internally or externally, it creates insider risk and potential data breaches.

In Bob’s case, since Bob gained access to salary files, he could share them internally or externally. This risk isn’t unique to Copilot because data loss can happen any time a user has access to sensitive information. However, Copilot can accelerate the risk because instead of manually searching through SharePoint, a user can simply ask questions like “Show me intellectual property documents” or “Find confidential contracts.” And Copilot doesn’t know what’s sensitive; it only provides whatever the user has permission to see.

Let’s see another example:

  • An employee resigns and wants to take the company’s IP.
  • Using Copilot, they quickly locate the most relevant confidential files.
  • Because permissions weren’t properly restricted, they now have the ability to extract and share sensitive data.

How can you remediate insider risks & data loss?

A. Detect risky behavior

  1. Use alerts and reports to track risky Copilot interactions.
  2. Monitor prompts, responses, and accessed resources
  3. Look for signs of prompt injection attacks or suspicious queries.

B. Protect sensitive files

  1. Apply labels to confidential data (e.g., “Mergers & Acquisitions,” “Confidential”).
  2. Create policies preventing Copilot from accessing labeled files.
  3. If a user asks Copilot to summarize a protected document, Copilot will block the request and return a message saying the file is protected.

C. Respond to insider risk

  1. Investigate users showing suspicious or risky behavior.
  2. Temporarily block their access until further review.
  3. Engage with the user to understand intent and prevent further misuse.


By combining labeling, monitoring, and policy enforcement, organizations can prevent Copilot from becoming a tool for insider threats and ensure sensitive data stays protected.

Microsoft 365 Copilot Security: Governance of AI Use

What is Copilot governance?

Governance is the process of supporting responsible Copilot use while adhering to company policies and government  regulations such as the EU AI Act and other AI frameworks. The goal is to:

  • Limit the risk of Copilot misuse.
  • Detect issues early and mitigate them quickly.
  • Ensure compliance with legal, ethical, and organizational requirements.

For example, if a SharePoint site with credit card numbers is left open to the entire organization, the longer that issue goes unnoticed, the higher the chance of exposure. Governance ensures you identify and fix such issues promptly.

Retention and Compliance Policies

A key part of AI governance is managing Copilot interactions, both prompts and responses. They must be managed like emails and documents. Organizations can:

 

  • Create retention policies, e.g., keep interactions for six months before deletion.
  • Support compliance and storage management
  • Apply legal holds, so Copilot prompts and responses are preserved alongside emails and documents during investigations.

Example: If an employee is under investigation for fraud, their Copilot prompts and responses must be included in the evidence review just like other records.

Governance also enables tracking and alerts for potential compliance or ethical violations, including:

  • Copyright infringement
  • Insider trading
  • Other forms of misconduct

Admins can search and review Copilot-generated content to ensure proper oversight.

Shadow AI Risks

Another governance concern is Shadow AI. It rises when employees use unauthorized third-party AI tools (e.g., ChatGPT) that may expose sensitive company data.

Example: Employees might paste intellectual property or trade secrets into an external AI app to generate content, potentially allowing the vendor to use that data to train its models, creating significant security and compliance risks.

To manage these risks, organizations should:

  • Discover which cloud apps and AI tools employees are using.
  • Assess the risk level of each app
  • Unsafe: mark as unsanctioned and block it
  • Allowed: mark as sanctioned and onboard under IT security controls
  • Unclear: assign for further review until a decision is made
  • Enforce access controls through policies, such as conditional access, to ensure only approved apps are used.

How Can Organizations protect data while using Microsoft Copilot?

Microsoft provides built-in tools that help organizations put oversharing, insider risk, and AI governance policies into action. While policies define what needs to be protected, tools like SharePoint Advanced Management and Microsoft Purview give organizations the means to enforce those protections effectively.

1. SharePoint Advanced Management (included with Microsoft 365 Copilot license)

When you purchase a Microsoft 365 Copilot license, it includes SharePoint Advanced Management, which provides governance tools such as:

  • Reports showing which sites are overshared
  • Visibility into file permissions (shared with “everyone,” internal users only, or specific groups)
  • The ability to take corrective action directly from reports

These features help identify oversharing and insider risks quickly and allow admins to restrict Copilot and user access where needed.

2. Microsoft Purview (separate offering)

For deeper governance, organizations can use Microsoft Purview, which goes beyond reporting and provides:

  • Reactive and proactive risk identification
  • Automatic sensitivity labeling of files (e.g., Confidential, Internal, Public)
  • File-level access controls (e.g., confidential files limited to executives, internal files available to managers, public files shareable externally)
  • Identification of risky user behavior and AI misuse

Examples:

  • If a file is labeled “Confidential,” Copilot will block access and respond: “This content is protected and cannot be accessed.”
  • Purview can automatically scan SharePoint for sensitive data such as passport numbers, Social Security numbers, or health records, and apply labels.

3. SharePoint Advanced Management vs. Purview Capabilities

4. Reporting and Risk Visibility

With Purview, admins can view detailed reports, including:

  • AI interaction history (prompts, responses, resources accessed)
  • Sensitive interactions per app (e.g., source code, Social Security numbers, credit card data)
  • Department-level insights into AI usage
  • Risk severity per app and potentially risky prompts
  • Adaptive protection that automatically flags users with elevated risk levels and applies controls until reviewed

5. Governance & Compliance

Purview enables organizations to:

  • Audit all Copilot interactions.
  • Enforce retention and deletion policies for prompts and responses.
  • Apply legal holds to Copilot interactions.
  • Receive alerts on possible compliance or ethical violations (e.g., copyright infringement, insider trading)
  • Track compliance against AI regulatory frameworks such as the EU AI Act and NIST AI framework, with clear roadmaps for improvement.

6. Customer Experience

Organizations using Copilot with Purview report:

  • Stronger protection of sensitive data
  • Seamless integration across Microsoft 365
  • Advanced, flexible governance tools
  • Improved accuracy and compliance in AI responses

How Can TechXoetic Help Secure Microsoft Copilot?

While Microsoft Copilot offers significant productivity benefits, it also introduces security risks, particularly around the exposure of sensitive data. Organizations need guidance to implement proper governance, permissions management, and monitoring to use Copilot safely.

Microsoft Copilot Security Services by TechXoetic

TechXoetic helps organizations navigate Microsoft Copilot security challenges by providing services such as:


With TechXoetic’s expertise, organizations can leverage the Microsoft Copilot productively while minimizing security risks and ensuring compliance.

Sign up for our newsletter   

Stay ahead with the latest technology tips, updates, and exclusive resources