This policy setting determines whether the operating system stores passwords in a way that uses reversible encryption, which provides support for application protocols that require knowledge of the user's password for authentication purposes. Passwords that are stored with reversible encryption are essentially the same as plaintext versions of the passwords. The recommended state for this setting is: Disabled. Note: Password Policy settings (section 1.1) and Account Lockout Policy settings (section 1.2) must be applied via the Default Domain Policy GPO in order to be globally in effect on domain user accounts as their default behavior. If these settings are configured in another GPO, they will only affect local user accounts on the computers that receive the GPO. However, custom exceptions to the default password policy and account lockout policy rules for specific domain users and/or groups can be defined using Password Settings Objects (PSOs), which are completely separate from Group Policy and most easily configured using Active Directory Administrative Center. Rationale: Enabling this policy setting allows the operating system to store passwords in a weaker format that is much more susceptible to compromise and weakens your system security. Impact: If your organization uses either the CHAP authentication protocol through remote access or IAS services or Digest Authentication in IIS, you must configure this policy setting to Enabled. This setting is extremely dangerous to apply through Group Policy on a user-by-user basis, because it requires the appropriate user account object to be opened in Active Directory Users and Computers.
To establish the recommended configuration via GP, set the following UI path to Disabled: Computer Configuration\Policies\Windows Settings\Security Settings\Account Policies\Password Policy\Store passwords using reversible encryption Default Value: Disabled.