I’ve been getting an annoying message that Exchange/Office 365 requires me to encrypt my Android phone when I know that it is already encrypted. The issue turns out to be this one. If you have an app enabled (like LastPass in my case) that uses accessibility services to insert data into text fields, then Android is unable to provide “enhanced” encryption and that triggers the warning from Exchange. Re-encrypting the phone multiple times, as I did, will not fix the issue.
The issue is discussed and a solution is provided here. To see whether you have the same issue, go to Settings > Security > Screen lock. Click on PIN. If you see this screen, you have this issue:
As you’ll notice, turning on accessibility services interferes with the phone’s ability to provide enhanced encryption. This is what is triggering the confusing warning from Office 365. Figure out what app is using accessibility services, turn that off and re-enable the “PIN to start phone” setting. After that O365 is happy.
I hope this saves you some time!