@Darren Heath, Thanks for your update. I am glad the testing device is compliant now. Here, please let me write a brief summary.
Issue:
Device is non-compliant and get password complexity Error 2016281112
Resolution.
For the error, it occurs with the compliance policy you created. For the policy, it applies to local account not AAD user account. It can get error when you assign to user group. Try to remove the user group and add one group with these devices to see if it can be fixed.
Thanks for your time and have a nice day!
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