Hi,
As I know, Dynamics 365 uses standard SQL Server cell level encryption for a set of default entity attributes that contain sensitive information, such as user names and email passwords. This feature can help organizations meet FIPS 140-2 compliance.
For Dynamics 365 (online), all new and upgraded organizations use data encryption by default. Data encryption can’t be turned off.
Hope it helps.
BR,
Judy
----------------------------
Appreciate to Mark it as Answer if it helps.