user data privacy cannot be compromised with sys admin rights

It sounds like your boss is not in the habit of using his brain. It only takes a few seconds of thought to understand the need for system administrators to be able to access all of the files on a computer.

Example: how would the system administrator be able to back up and restore files if he weren't able to access those files?

Example: how would the system administrator be able to perform disk defragmenting and file structure checks and repair if he weren't able to access every block on the disk?

Example: how would a system administrator be able to create file access restrictions if he were restricted?

The issue of trusting system administrators is one that I've thought about a lot. The fact that a corporation must entrust certain people with access to all computer based information is a concern. However, computer support is not the only corporate department facing this issue. The accounting department has full access to a lot of confidential information about the corporation and its employees. The purchasing department also has access to a lot of corporate information that should remain private. Corporations have always had to face the issue of trusting employees. The computer support department is simply the latest addition to the list of departments privileged to use and keep private confidential corporate information.

Maybe your boss's concern comes from him being afraid that you will discover that he is doing something that he shouldn't do.