Retention label rules should also apply to Document Sets in SharePoint
Currently it's possible to apply a retention label to a Document Set in SharePoint, which means that all documents in it are retained and disposed according to the rules set on the label. But the Document Set are not disposed of, only documents within it. As Document Sets usually have custom metadata (e.g. Personal Identifiable Information) which is subject to data retention regulations, it is necessary for Document Sets to be subject to the label rules as well.
I am finding that using standard SharePoint Information Management Policies applied to Document Set content types in SharePoint Online does not allow the set itself to be automatically deleted. The files within the set can be deleted if there is a policy applied to their content type, but the set itself cannot be automatically deleted.
So that's not using Office 365 classification/data governance, just SharePoint information management policies.
Sophie Ke commented
This is a core requirement for Records Management. Document sets must be able to be put through disposition as a bundle together with all the documents within. We cannot have documents being destroyed but the document sets remain.
The functionality of using retention policies via site/library based Information Management Policies to delete document sets has always been available and is a core requirement for a robust record keeping plan (never mind compliance with government record keeping obligations).
If Office 365 classification labels and the Data Governance labels do not delete document sets after the retention period expires then they are a redundant feature that cannot be used by any Australian government organisation.