Issue with password expiration notifications

We have Windows devices, which are only in Azure cloud. Nevertheless I found that they receive a Group Policy, under Computer Configuration\Windows Settings\Security Settings\Local Policies\Security Options from AD to prompt users to change password 5 days before expiration. Unfortunately this Group Policy doesn't work because the users doesn't receive any notification for password change. The question is, how is it possible, that cloud based computers receive Group Policy from local AD and why this policy doesn't work?