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I want to create a new column master key using certificate created in advanced. I use the following command to create a certificate in the Windows Certificate Store - Local Machine.

New-SelfSignedCertificate -CertStoreLocation cert:\LocalMachine\My -DnsName TEST_CERT_01

The issue is that when I try to select this certificate, I get the following error:

enter image description here

Can anyone tell what's wrong with the certificate?

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Please refer to Create a self-signed certificate using PowerShell section of this article.

To be used as Always encrypted CMKs, certificates require a specific configuration.

You should be able to create a certificate to be used as CMK using the following commands

New-SelfSignedCertificate is a Windows PowerShell cmdlet that creates a self-signed certificate. The below examples show how to generate a certificate that can be used as a column master key for Always Encrypted.
$cert = New-SelfSignedCertificate -Subject "AlwaysEncryptedCert" -CertStoreLocation Cert:CurrentUserMy -KeyExportPolicy Exportable -Type DocumentEncryptionCert -KeyUsage KeyEncipherment -KeySpec KeyExchange -KeyLength 2048 

# To create a certificate in the local machine certificate store location you need to run the cmdlet as an administrator.
$cert = New-SelfSignedCertificate -Subject "AlwaysEncryptedCert" -CertStoreLocation Cert:LocalMachineMy -KeyExportPolicy Exportable -Type DocumentEncryptionCert -KeyUsage KeyEncipherment -KeySpec KeyExchange -KeyLength 2048

This should work with Server 2012, you will have to install makecert utility if it does not exist:

makecert.exe -n "CN=Always Encrypted Certificate - exported" -pe -sr CurrentUser -r -eku 1.3.6.1.5.5.8.2.2,1.3.6.1.4.1.311.10.3.11 -ss my -sky exchange -sp "Microsoft Strong Cryptographic Provider" -sy 1 -len 2048 -a sha256

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