M365 Copilot data processing goes local to meet sovereignty demands

Microsoft will allow customers in 15 countries to process Microsoft 365 Copilot data locally, part of the company’s plans to address growing digital sovereignty concerns in regions such as Europe. 

Data generated during interactions with the generative AI (genAI) assistant — including user prompts and output responses — will be handled in data centers within each country Microsoft announced Tuesday.

The rollout will begin with Australia, India, Japan, and the United Kingdom by the end of the year, followed by Canada, Germany, Italy, Malaysia, Poland, South Africa, Spain, Sweden, Switzerland, the United Arab Emirates and the United States in 2026.

The aim is to help M365 Copilot customers, particularly those in government and highly regulated industries, meet “governance, security and regulatory compliance demands,” Paul Lorimer, Microsoft corporate vice president, Office 365 Enterprise and Cloud Engineering, said in a blog post Tuesday.

“With in-country processing, Copilot interactions are processed, under normal operations, in data centers located within a nation’s borders, giving customers greater control over their data,” said Lorimer. Local processing can also improve the genAI assistant’s performance by reducing latency, he said.

Amid rising geopolitical tension, customers in some regions want their data — and the processing of that data — confined to “specific regional, if not local, data centers,” said Nader Henein, research vice president analyst at Gartner. “This is meant as an additional level of regulatory protection where data stored locally is governed by local laws and further insulated from extra-territorial reach.”

As demands for data residency have risen, Microsoft introduced its Advanced Data Residency add-on for Microsoft 365 apps, but not Copilot processing, “due to limitations in GPU capacity. Now this has changed, with plans to support local processing in a series of 15 regional data centers,” he said. 

“For organizations that had prioritized storage and processing residency as a key requirement, the adoption of Copilot capabilities within the Microsoft stack was delayed — with this change, they have a path to adoption.”

The announcement builds on Microsoft’s earlier efforts to address European data sovereignty concerns, in particular.

Early this year, Microsoft published its European “digital commitments,” promising to “uphold Europe’s digital resilience regardless of geopolitical and trade volatility.” It also introduced services such as Data Guardian, which restricts access to customer data to Microsoft staff residing in Europe, and Microsoft 365 Local, which enables customers to run applications including SharePoint Server and Exchange Server on their own systems with Azure Local. 

Microsoft 365 Local is now generally available, the company said, with a disconnected option for “complete isolation” due in early 2026. 

Other announcements this week include the establishment of a European board of directors comprising European nationals to oversee data center operations in compliance with European law. Microsoft also extended AI data to its European Union Data Boundary service, meaning European customers’ AI data will be stored and processed exclusively in the EU, “whether at rest or in transit.”