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When a loan officer asks Microsoft 365 Copilot to summarize this week's mortgage rate movement, or a compliance analyst asks it to check a vendor's latest breach disclosure, the answer is only as current as the information Copilot can reach. That is what web grounding does: it lets Copilot pull fresh context from the public web so its answers reflect today, not the last time its model was trained. For banks, credit unions, and mortgage companies, that currency is genuinely useful, and it is exactly why web grounding is turned on for most Microsoft 365 Copilot users by default.
Starting in mid-July 2026, Microsoft is giving administrators a much finer instrument to govern that behavior. A new control, published to the Microsoft 365 Message Center as MC1411435, lets IT teams exclude specific web domains from Copilot web grounding rather than choosing only between all web access on or all of it off. It is a small setting with an outsized governance story for regulated institutions, and it lands at the same moment examiners are starting to ask pointed questions about how banks, credit unions, and mortgage companies govern generative AI.
This guide explains what web grounding really does, what data does and does not leave your Microsoft 365 tenant, exactly what the new domain exclusion control changes, and how to build a governance posture your examiners will accept. The productivity is the point. The job is to keep it governed.
What Web Grounding Actually Does in Copilot
Web grounding is an optional feature in Microsoft 365 Copilot and Microsoft 365 Copilot Chat that lets Copilot reference public web content when it answers a prompt. Microsoft's own documentation is direct about the value: allowing Copilot to reference web content "improves the quality of Copilot responses by grounding them in the latest information from the web." When it helps, Copilot reaches out to the Bing search service for that current context, then folds what it finds into the response.
The mechanics matter, because they shape the governance conversation. When web grounding is on, Copilot does not send the user's whole prompt to Bing. It reads the prompt, identifies the terms where fresh web information would improve the answer, and generates a short search query, often just a few words, that it sends to the Bing search service. The response comes back, Copilot composes an answer, and in Microsoft 365 Copilot Chat the exact web queries are shown to the user as citations so they can see what was searched.
For a lending team, this is the difference between an assistant that knows current agency guidance and one that answers from a stale snapshot. Copilot can pull a regulator's newest bulletin, a vendor's current status page, or this morning's rate commentary into a draft, and it does so without a loan officer leaving the flow of work. That is the productivity win, and it is real. The governance question is not whether to allow it, but how to bound it.
What Leaves Your Tenant, and What Does Not
The most common fear a chief information security officer raises about Copilot web grounding is that customer data, loan files, or account details will be sent to a search engine. Microsoft's documentation addresses that directly, and the details are reassuring, up to a precise line that every regulated institution should understand.
The generated search query sent to Bing does not include the user's entire prompt (unless the prompt is very short, like "local weather"), it does not include entire Microsoft 365 files or documents uploaded into Copilot, and it does not include any identifying information from the user's Microsoft Entra ID, such as username, domain, or tenant identifier. The queries are sent to Bing with user and tenant identifiers removed. Your prompts and Copilot's responses, meanwhile, stay inside the Microsoft 365 service boundary and never leave it without your direction, protected by enterprise data protection and the Microsoft Products and Services Data Protection Addendum, with Microsoft acting as a data processor.
Here is the line that matters for a regulated institution, and it is one your examiners and your privacy counsel will want you to know. Microsoft states plainly that the Data Protection Addendum does not apply to the generated web search queries sent to Bing, and that HIPAA compliance and the European Union Data Boundary do not apply to those generated search queries either. For that narrow slice, the few-word query Copilot sends to the Bing search service, Microsoft acts as a data controller rather than a processor. This does not touch the prompts and responses stored in your Microsoft 365 tenant, which keep their full protections. But it means the generated web query is a genuinely different data flow, and it is precisely the flow the new domain exclusion control lets you shape.
The distinction to get right
Enterprise data protection, the Data Protection Addendum, and the EU Data Boundary continue to cover the prompts and responses Copilot keeps inside your Microsoft 365 tenant. They do not extend to the short, de-identified query Copilot sends to the Bing search service for grounding. Treat the generated web query as a separate outbound flow in your vendor risk and data mapping, not as an extension of the tenant boundary.
The New Domain Exclusion Control (MC1411435)
Until now, governing Copilot web grounding meant a blunt choice. An administrator could allow web search or block it, tenant wide or by user group, through the "Allow web search in Copilot" policy in the Cloud Policy service for Microsoft 365. That policy still exists, and it still offers three settings: web search enabled in both Microsoft 365 Copilot and Copilot Chat, disabled in both, or disabled in Copilot Work mode while enabled in Web mode and Copilot Chat. Individual Microsoft 365 Copilot users can also turn their own web content on or off with a personal toggle.
The new control published as MC1411435 adds the middle ground that governance teams have been asking for. Instead of turning grounding off entirely, an administrator can exclude up to 1,000 specific domains from Copilot web grounding, and content from those excluded domains will not be used in any Copilot response that relies on the web. Web grounding stays on and productive for everything else.
Domain exclusion turns a light switch into a dimmer. You keep the productivity of current web answers while drawing a defensible line around the sources you do not want an AI assistant grounding decisions on.
The operational details are worth pinning down before you plan a rollout. The control is configured with a PowerShell script rather than a point-and-click toggle, and Microsoft has scheduled that script to be available on July 16, 2026. General availability rolls out worldwide beginning in mid-July 2026 and is expected to complete by late July 2026. Nothing happens automatically: the feature is not enabled by default, no action is required for it to become available in your tenant, and there is no change to the user experience unless an administrator configures an exclusion list. In other words, the capability arrives quietly, and the governance value only shows up when your team decides which domains to keep out.
Why This Matters for a Regulated Institution
For banks, credit unions, and mortgage companies, an AI assistant that grounds answers in the open web introduces a supervision question that generic productivity advice tends to skip: which sources should be allowed to shape an answer a banker might act on? Left unbounded, Copilot can ground a response on a competitor's marketing page, a consumer-finance forum full of confidently wrong tax advice, a manipulated site engineered to poison AI answers, or a sanctioned or otherwise off-limits domain. None of that is malicious on Copilot's part. It is simply what an open web search returns, and for a regulated institution the provenance of an answer is part of the control environment.
Regulators have moved from asking whether financial institutions use AI to asking how they govern it. The Federal Financial Institutions Examination Council's guidance on architecture, infrastructure, and operations, the Gramm-Leach-Bliley Act Safeguards Rule, and the NIST AI Risk Management Framework all point the same direction: you are expected to know your data flows, bound your third-party dependencies, and be able to show your work. A defensible answer to "how do you control which external sources your AI assistant relies on" is now part of an examiner-ready posture, and until MC1411435 the honest answer for most Copilot deployments was "we can only turn it all on or all off."
Effective AI risk management calls for organizations to map the context and data sources an AI system draws on, and to put governance structures in place so that those dependencies are documented, bounded, and monitored throughout the system's life.
The examiner-facing story gets stronger because Microsoft already logs the raw material. Web search query logging lets administrators search, audit, and run eDiscovery on the exact web queries Copilot derived from a prompt, using Microsoft Purview audit log activities and the activity explorer in Microsoft Purview Data Security Posture Management for AI. That means a financial institution can pair a domain exclusion policy with real evidence: here is our list of excluded domains, here is the audit trail of what Copilot actually searched, and here is how we review it. That pairing, a control plus its evidence, is exactly what a strong AI governance program looks like, and it is the same discipline ABT brings to the rest of a managed Microsoft 365 tenant. It complements the broader set of examiner-ready Copilot controls a regulated institution should have in place before it scales AI to the front line.
A Practical Governance Playbook
The right posture for most financial institutions is not to switch web grounding off. Turning it off entirely trades away the productivity that makes Copilot worth the license, and it tends to push users toward consumer AI tools that carry none of your tenant protections. The better move is to keep grounding on, exclude the domains you cannot defend, and prove you are watching. Here is how the three postures compare.
Turning that into a rollout is straightforward once you treat it as a governance project rather than a checkbox. Decide who owns the exclusion list, because a domain block list is a living artifact that a compliance or information security owner should review on a schedule, not a one-time script an engineer runs and forgets. Seed the list with the categories your institution genuinely should not ground on, then keep grounding on for everything else so the productivity survives. Wire the audit side up front by confirming Purview audit logging and Data Security Posture Management for AI are capturing web query activity, so your control has evidence from day one. And write the whole thing down: the policy, the owner, the review cadence, and the audit source, in the same AI governance documentation your examiners will eventually ask to see.
What to do before the July 16 rollout
Confirm who owns Copilot AI governance in your institution. Draft the domain exclusion list your compliance and information security leads can defend. Verify the "Allow web search in Copilot" policy in Cloud Policy reflects your intended posture. Turn on Microsoft Purview audit and Data Security Posture Management for AI so web query logging is capturing evidence. Then apply the MC1411435 exclusion script when it publishes, and schedule the first list review for 30 days out.
None of these steps require ripping anything out. They are the difference between a Copilot deployment that happens to have web access and one that can answer, on demand, the question every regulated institution will eventually field: how do you govern what your AI assistant learns from the open internet? The same discipline applies to the adjacent risks worth closing at the same time, including Copilot oversharing of internal content and the data-loss-prevention controls that govern Copilot and AI agents through Microsoft Purview.
How ABT Deploys and Governs Copilot for Financial Institutions
Access Business Technologies is a Tier 1 Microsoft Cloud Solution Provider dedicated to financial services, and we manage the Microsoft 365 tenants of more than 750 banks, credit unions, and mortgage companies. That managed-tenant relationship is why a control like domain exclusion is not a research project for our customers. We configure the Cloud Policy service, set the "Allow web search in Copilot" posture to match each institution's risk appetite, apply the MC1411435 exclusion list, and stand up Microsoft Purview Data Security Posture Management for AI so the audit evidence is captured from the start.
Under the M365 Guardian operating model, ABT treats Microsoft 365 Copilot as a governed workload, not a feature toggle. We combine the Copilot admin controls (Cloud Policy web search settings and MC1411435 domain exclusion), the Microsoft Purview evidence layer (audit log activities and Data Security Posture Management for AI), and Microsoft Entra ID identity governance into one examiner-ready posture, then keep it current as Microsoft ships new controls. For lending teams, our MortgageGuide Copilot agent brings the same governed model to loan-specific work.
The productivity of Microsoft 365 Copilot is the reason financial institutions adopt it. Keeping that productivity governed, so a bank, credit union, or mortgage company can scale AI to the front line without inheriting an ungoverned data flow, is the reason they work with a partner who manages the tenant as a whole. Domain exclusion is a small new control. Used well, inside a documented governance program with real audit evidence behind it, it is one more thing your next exam will not surprise you with. If you are weighing how Copilot fits your institution at all, our Microsoft Copilot buyer's guide for financial institutions is the place to start.
Deploy Microsoft 365 Copilot with governance examiners accept
ABT manages the Microsoft 365 tenants of more than 750 banks, credit unions, and mortgage companies. We configure Copilot web grounding, apply domain exclusion, and stand up the Microsoft Purview evidence layer so your AI deployment is productive and examiner-ready from day one.
Frequently Asked Questions
Web grounding is an optional feature that lets Microsoft 365 Copilot and Copilot Chat reference current public web content when answering a prompt. Copilot generates a short search query from the prompt, sends it to the Bing search service, and uses the results to ground a more current response. It improves answer quality but introduces a governance question about which external sources should be allowed to shape answers.
Domain exclusion lets an administrator exclude up to 1,000 specific web domains from Microsoft 365 Copilot web grounding. Content from excluded domains will not be used in any Copilot response that relies on the web, while grounding stays on for everything else. It is configured with a PowerShell script scheduled for July 16, 2026, and rolls out worldwide beginning mid-July 2026. It is not enabled by default and requires admin action to configure.
No. The generated query Copilot sends to the Bing search service is a short set of terms, not the full prompt, not entire Microsoft 365 files or uploads, and not any Microsoft Entra ID identifying information such as username, domain, or tenant identifier. Queries are sent with user and tenant identifiers removed. Note, though, that Microsoft states the Data Protection Addendum, HIPAA compliance, and the EU Data Boundary do not apply to those generated web search queries, so treat the query as a separate outbound flow in your data mapping.
For most financial institutions, no. Turning grounding off entirely removes the current-web productivity that justifies the Copilot license and tends to push staff toward unmanaged consumer AI tools. The stronger posture is to keep grounding on, exclude the domains you cannot defend using the new MC1411435 control, and pair the policy with Microsoft Purview audit and query logging so you have evidence of what Copilot actually searched.
Pair a control with its evidence. The control is your domain exclusion list plus the Cloud Policy web search setting. The evidence is Microsoft Purview web search query logging and the activity explorer in Data Security Posture Management for AI, which let you audit and run eDiscovery on the exact queries Copilot derived from prompts. Document the policy, the owner, the review cadence, and the audit source in your AI governance program, mapped to the NIST AI Risk Management Framework and FFIEC expectations.
Microsoft scheduled the PowerShell configuration script for July 16, 2026, with general availability rolling out worldwide beginning mid-July 2026 and completing by late July 2026. The control is configured through a PowerShell script rather than a graphical toggle, supports up to 1,000 excluded domains, and requires an administrator to build and apply the list. Nothing changes for users until an administrator configures exclusions.
