Since your Datto appliance is expected to have the most recent data for disaster recovery, and also the device has limited space and it cannot keep unlimited data, the retention used for your local backups should not be more than 1 month of data.
Steps to set up the local retention:
Over the Datto web portal, click on the Protect tab.
Scroll down the page and find the server in question.
Click on the Configure Agent Settings on the left.
Scroll to the section Local Backup and Retention Policy.
Then over the Set Retention for Local Backups choose Keep local backups on my device for 1 Month.
your cloud solution, Solarwinds or Datto cloud, would have your data store for the longest retention, which is the 7 years expected (this configuration for your offsite data retention is managed on our end). This way, both solutions would complement the retention to give you complete compliance.