This latest update was foreshadowed in May when the policy for assessing breaches of the immigration laws in the past 3 or 5 years was amended.

The policy on CSI and EHIC is unfair and unnecessary. This week I wrote about how easily it can be fixed. https://www.freemovement.org.uk/csi-and-citizenship/
The solution to the breach of the immigration laws issue is in the British Nationality Act 1981. The Secretary of State has the power to treat an applicant as fulfilling the requirement, even if technically they don't. And not having CSI is very much a "technical" breach.
The solution to the 10-year good character assessment period is even simpler. The Secretary of State has discretion to determine who is or is not of good character, and can easily instruct caseworkers not to bother assessing Treaty Rights for EU settled status holders.
These solutions would follow the precedent of the legacy programme; the UK's last mass-documentation event. The "legacy" was a Home Office "backlog" of 400,000+ failed asylum seekers who could not be removed from the UK. Many were granted indefinite leave to remain.
The legacy ILR grants followed long periods of UK residence in knowing breach of immigration laws. One year after getting ILR, they were permitted to apply for naturalisation as British citizens. There was a specific policy to allow caseworkers to overlook unlawful residence.
If British citizenship could be granted with such ease to legacy beneficiaries, a similar approach can definitely be taken with those granted under the EU Settlement Scheme . In contrast to the legacy, European students and homemakers had no idea their UK residence was unlawful.
In a year already fraught with COVID policies, an impending "Australian-style" points based system, an immigration rules re-write, and of course Brexit on 31 December, I think we all could have done without the resurgence of CSI.
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