AI Copilot Compliance Risk: How to Nail Its Usage in Regulated Industries

Calling on the Microsoft 365 Copilot to summarize a meeting, asking it to make images, even automate tasks—the benefits are profound. 

Yet for those in the finance or healthcare industry, they are having to put the brakes on taking advantage of these optimizing AI features over fears it will put them on the wrong side of compliance. 

“Everyone is really interested in enabling these amazing tools, but the compliance and governance issues have them holding back to make sure they are prepared,” Eric Wiggins, Product Marketing Director at Smarsh, said. 

AI, for all its promise, can expose companies to risks around data security, recordkeeping, and regulatory oversight. But should these concerns stop you from embracing AI? 

Smarsh believes not—and has built solutions that let organizations deploy Microsoft 365 Copilot while helping them stay ahead of compliance risks. 

Examining the Compliance Issues of Microsoft 365 Copilot Use 

The integration of AI tools like Microsoft 365 Copilot into organizational workflows presents unique compliance challenges that traditional communication governance frameworks may not adequately address. 

Unlike conventional communications that follow predictable patterns, AI interactions involve dynamic content generation, data processing, and information synthesis that can be difficult to monitor and archive. 

Regulatory bodies governing industries like finance and healthcare have clarified that existing recordkeeping and oversight requirements apply equally when AI is used, especially if it generates content that forms part of a regulated business communication or involves sensitive customer information. 

This is because these systems may process confidential data and contribute to important decisions, and regulators expect organizations to retain the resulting records in accordance with applicable laws and compliance frameworks. 

“If it involves customer information or produces regulated communications—whether for internal use or external delivery—it should be evaluated for retention in line with existing rules for that workflow,” Wiggins said. 

Thus, companies that want to leverage these advanced productivity tools need a way to preserve the relevant outputs, context, and metadata so they can be retrieved and provided to auditors when required. Yet this balancing act requires not only a compliant archiving solution, but one that works in the background without disrupting the user experience or creating barriers to AI adoption. 

Organizations need technology that can capture, store, and review applicable AI-generated records across various communication channels, especially within platforms like Microsoft Teams, where Microsoft 365 Copilot usage is expanding. 

Smarsh has developed specialized solutions to address these compliance challenges, enabling organizations to confidently deploy Microsoft 365 Copilot while maintaining regulatory compliance. 

Smarsh’s Copilot Compliance Solutions 

Smarsh’s solutions are developed in close collaboration with Microsoft’s product roadmap for Microsoft 365 Copilot, ensuring continuous capture coverage as new Copilot features and integrations become available. This allows regulated organizations to adopt AI-powered productivity tools with confidence that compliance controls will remain in place as capabilities evolve. 

As such, Smarsh’s compliance solution for Copilot is specifically designed to address the challenges of enabling Microsoft Copilot usage in regulated environments. 

By connecting directly to Microsoft’s Copilot Activity Export API, the Smarsh solution operates in the background—capturing prompts, outputs, metadata, and attachments—without altering the user’s Copilot experience on the web or work in M365 Copilot Chat, in Microsoft Teams, or M365 Copilot Agents in Teams. 

“Because it’s integrated with the Microsoft 365 Copilot export API, the capture process is invisible to the end user. Employees continue working in Copilot as usual, while the data is preserved in compliance with their companies’ retention requirements,” Wiggins explained. 

The solution also provides compliance and governance teams with policy controls that can be configured at a granular level—such as by user profile, department, or location—so that governance rules align to the specific requirements of each regulatory jurisdiction or internal policy framework. 

This flexibility enables organizations to implement customized governance frameworks that align with their unique regulatory requirements and internal policies. 

“You can set up policies based on geolocation and at a granular level like user profiles, so you would be able to adhere within different regions for specific regulations or internal policies,” Wiggins noted. 

This capability is particularly valuable for multinational companies operating across different regulatory jurisdictions. 

One of the key differentiators of Smarsh Capture is its ability to preserve the full context of Microsoft 365 Copilot activity. This includes original formatting, associated documents, conversation history, and metadata such as timestamps, participants, and session details. 

This not only ensures an accurate and verifiable record, but also creates a complete, searchable archive of AI-assisted communications for e-discovery, compliance verification, or internal investigations. 

“Our ability to structure and thread these captured interactions so you can see exactly what was asked, what data was referenced, and what Copilot produced—across the full workflow—is our ‘secret sauce,’” Wiggins said.  

AI prompts and responses are stored with all supporting materials and context needed to understand the decision process. Such detailed context is critical for regulatory audits, where the ability to reconstruct the full sequence of events can help demonstrate compliance and avoid misinterpretation of AI-assisted decisions. 

When compliance questions arise or during regulatory audits, organizations can “reconstruct the truth” by accessing these threaded conversations that show exactly what happened, when it happened, and the inputs that led to the each AI –generated output. 

Benefits Beyond Compliance 

While regulatory compliance is the primary driver for implementing AI governance solutions, organizations that deploy Smarsh’s Microsoft 365 Copilot compliance tools gain additional strategic advantages. 

By establishing a comprehensive archive of AI interactions, companies create valuable repositories of institutional knowledge that can be leveraged for process improvement, training, and quality control. 

These archived records give compliance and operations teams insight into how employees are leveraging Microsoft 365 Copilot, helping identify usage patterns that can inform training programs, refine workflows, and develop best practice guidelines. 

Equally, when employees know that compliance safeguards are in place, they can confidently explore and utilize M365 Copilot’s capabilities in new ways without fear of inadvertently creating compliance issues. 

This can create innovative new ways for companies to improve their workflows, leading to increases in efficiency company-wide. 

“By mitigating that compliance risk, we remove the hesitation in adopting the technology, enabling organizations to deploy it faster and with fewer concerns about regulatory pitfalls,” Wiggins explained.  

For organizations with established AI governance policies, Smarsh’s Microsoft 365 Copilot solution delivers the technical infrastructure needed to enforce those policies at scale. 

“Within our platform, you can embed your governance requirements—beyond what regulations dictate—so your internal policies are applied,” Wiggins said. 

This allows enterprises to implement robust oversight frameworks that cover both regulatory obligations and internal ethical standards for AI use, ensuring Microsoft 365 Copilot can be deployed responsibly and to its fullest potential. 

Making Copilot Compliance a Strength 

As AI capabilities continue to expand and regulatory oversight adapts, organizations face a clear decision: implement compliance-ready solutions or limit the scope of AI adoption. In today’s environment, where Microsoft 365 Copilot is becoming a core productivity tool, the former is quickly becoming the only viable option. 

For enterprises investing in Microsoft 365 Copilot and other AI platforms, choosing the right compliance and governance partner is a strategic move that determines how quickly and safely these technologies can be deployed. 

Confidence in that partnership enables both leadership and staff to fully leverage the value of their AI investment without fear of regulatory missteps or recordkeeping gaps. 

The payoff includes more efficient processes, accelerated innovation, and the ability to capture and scale best practices across the organization. 

While compliance requirements are non-negotiable for many regulated industries, implementing a solution such as Smarsh Capture for Microsoft 365 Copilot turns compliance from a barrier into a business enabler.