MCP Custom Connector (SSE) "SystemError" and "Connector Request Failed" despite 200 OK Backend Logs

Rahul Dhande 20

Hello Team,

I am building a custom agent in Copilot Studio using the Model Context Protocol (MCP) to integrate with GitLab. While my Node.js backend (hosted locally and tunneled via ngrok) shows successful handshakes and 200 OK statuses, the Copilot Studio UI consistently fails to discover tools or execute them, resulting in SystemError or Connector request failed.

Environment Details

Host: Node.js (Express)
Tunnel: ngrok (HTTPS)
Protocol: MCP (Model Context Protocol) using SSEServerTransport
Auth: API Key via x-api-key header
Target API: GitLab REST API v4

NGROK HTTP Requests

11:51:31.911 GMT POST /sse

11:50:51.831 GMT POST /sse

11:50:50.785 GMT POST /sse 200 OK

11:41:34.506 GMT POST /sse

11:39:38.996 GMT POST /sse

11:37:00.712 GMT POST /sse 200 OK

C:\Users\Rahul\Desktop\azurecicd\rd-gitlab-mcp>node server.js

[dotenv@17.3.1] injecting env (2) from .env -- tip: ⚙️ suppress all logs with { quiet: true }

Server live on 3000

Establishing new SSE Handshake...

Connection Ready.

Cleaning up old transport...

Establishing new SSE Handshake...

Server session maintained.

Cleaning up old transport...

Establishing new SSE Handshake...

Server session maintained.

The the agent shows a "Processing" status for 30+ seconds before returning:

Error code: SystemError. Conversation ID: [ID]. Time (UTC): [Timestamp].

Attached Snips and Seever.js Files. The Gitlab PAT Token and x-api-key are stored in .env file and referenced in sever.js

Thanks

Rahul

server - Copy.txt
Copilot_Studio_Connections.jpg
Copilot_Studio UI.jpg

Sayali-MSFT 5,281 Reputation points Microsoft External Staff Moderator

2026-03-16T05:21:53.1066667+00:00

Hello @**Rahul Dhande,**Thank you for bringing this issue to our attention. We will look into it and get back to you shortly.

1 answer

Sayali-MSFT 5,281 Reputation points Microsoft External Staff Moderator

2026-03-17T08:48:22+00:00

Hello Rahul Dhande,
Your setup is largely correct—the MCP server is reachable, authentication works, and the SSE connection is successfully established. However, Copilot Studio fails at the tool discovery and execution stage, ultimately returning a generic SystemError.

The core issue is a mismatch between your MCP (SSE) implementation and Copilot Studio’s strict and currently incomplete runtime expectations. Even though the connection opens, Copilot Studio requires highly specific, protocol-compliant SSE messaging (format, timing, and structure). Any deviation—such as delayed tool discovery, improper SSE framing, multiline JSON, reused sessions, or large/slow responses—causes silent failures that are not surfaced in the UI.

This explains why everything appears healthy in logs (ngrok, Node.js, MCP server), yet fails in the Copilot runtime. These behaviors are known platform limitations, including unreliable SSE handling, lack of diagnostics, and poor support for stateful or large responses.

Recommended approach: Treat MCP in Copilot Studio as preview/experimental only. For reliable production scenarios, avoid MCP and instead use Power Automate or custom connectors. If continuing with MCP, enforce strict stateless behavior, immediate tool discovery, exact SSE formatting, and minimal response payloads.
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Rahul Dhande 20 Reputation points

2026-03-17T16:21:45.2766667+00:00

Hi @Sayali-MSFT

Thank you for your detailed explanation and for clarifying the current limitations of MCP within Copilot Studio. That helps a lot in understanding where the breakdown is happening.

Based on your recommendation to move toward more reliable approaches, I would like to explore both Power Automate and Custom Connectors for integrating with GitLab (SaaS version) to automate common Git operations.

Could you please share sample implementations or reference architectures?

My goal is to implement a stable and production-ready integration for GitLab automation with Copilot Studio, so any practical guidance or working samples would be greatly appreciated.

Addtional Question regarding MCP deployment scenarios for MCP. So far, I've been testing my MCP Server locally on windows and exposring it via ngrok to Integrate with copilot Studio. If I host MCP server on RedHat Lnux 9 OnPrem Server behind coprporate Proxy ,how Coplout Studio establish connectiivty to my MCP server?

Thanks again for your support!

Rahul

Sayali-MSFT 5,281 Reputation points Microsoft External Staff Moderator

2026-03-23T11:16:21.96+00:00

Hello **Rahul Dhande,
**
Copilot Studio integrations with GitLab should avoid MCP for production and instead rely on Power Automate (for reliability, security, and ease of use) or Custom Connectors (for scalable, strongly-typed integrations). MCP remains a preview feature with limitations in reliability, tool discovery, and enterprise readiness, and it cannot be used in on-prem environments behind corporate proxies because it requires a publicly accessible HTTPS endpoint. As a result, MCP should be treated as experimental, while Power Automate and Custom Connectors are the only stable, supported approaches for real-world deployments.

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MCP Custom Connector (SSE) "SystemError" and "Connector Request Failed" despite 200 OK Backend Logs

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