This policy setting controls whether Outlook is required to use FIPS-compliant algorithms when signing and encrypting messages. Outlook can run in a mode that complies with Federal Information Processing Standards (FIPS), a set of standards published by the National Institute of Standards and Technology (NIST) for use by non-military United States government agencies and by government contractors. If you enable this policy setting, Outlook runs in a mode that complies with the FIPS 140-1 standard for cryptographic modules. This mode requires the use of the SHA-1 algorithm for signing and 3DES for encryption. If you disable or do not configure this policy setting, Outlook does not run in FIPS-compliant mode. Organizations that do business with the United States government but do not run Outlook in FIPS-compliant mode risk violating the U.S. government's rules regarding the handling of sensitive information.For more information about FIPS, see FIPS - General Information at http://www.itl.nist.gov/fipspubs/geninfo.htm FIPS mode in Windows enforces 3DES, AES 256/192/128, SHA1, and SHA 512/384/256. The 3DES and SHA1 modules are FIPS 140 certified. FIPS mode restricts Outlook to a very short list of SMIME capabilities. Almost all SMIME algorithms are FIPS certified on Windows. Reference https://docs.microsoft.com/en-us/windows/security/threat-protection/fips-140-validation#microsoft-fips-140-2-validated-cryptographic-modules to double check that the SMIME capabilities used and specified in certificates are FIPS certified.
Set the policy value for User Configuration -> Administrative Templates -> Microsoft Outlook 2016 -> Security -> Cryptography 'Run in FIPS compliant mode' to 'Enabled'.