When your first setup Office 365 the password complexity is already set for you. You can see the requirements here.
I know what some customers are like and they still insist, even though you explain the risks, so here is how to customize the password policies set in Azure AD (which Office 365 leverages).
A couple of caveats before we start. I recommend you have both your on prem and Azure AD settings set to the same level of complexity to ensure no matter where the account is created it meets your corporate security policies. This said, if you synchronize using DirSync or AAD Connect the password complexity policies configured in the on-premises Active Directory override any complexity policies that may be defined in the cloud for synchronized users. This means any password that is valid in the customer’s on-premises Active Directory environment can be used for accessing Azure AD services.
So how do we carry on regardless?
Disable Complex Password Requirement:
Connect to Office 365 using the Azure Module for Powershell by using the following command Connect-MsolService
Enter your credentials and press enter.
Now we can see what policy is currently set by using the following command:
Get-MsolUser | ft -autosize UserPrincipalName,StrongPasswordRequired
Every user should be set to True under the StrongPasswordRequired setting. Only Shared/Resource mailboxes (these don’t require credentials) should be set to <blank>.
If you want to disable this setting for an individual user then we use the following command:
Set-MsolUser – UserPrincipalName “UPN HERE” -StrongPasswordRequired $false
Now you can see the results of this by using the command we used above:
If you wanted to disable this for all users the you can use this command:
Get-MsolUser | Set-MsolUser -StrongPasswordRequired $false
In the above example you can see I also ran the command to see the outcome
Hope this helps.