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Most of this is to be expected, but the parts that are ridiculous is that your encryption key is backed up to OneDrive and:

"We will access, disclose and preserve personal data, including your content (such as the content of your emails, other private communications or files in private folders), when we have a good faith belief that doing so is necessary to protect our customers or enforce the terms governing the use of the services."

It seems that Microsoft had removed this sentence from their Privacy Statement - at least I'm unable to find the quoted text now.