Password option greyed out
How can I turn on a password on my Apple Watch if the option is greyed out?
Apple Watch SE, watchOS 7
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If the Turn Passcode Off button is greyed out, passcode restrictions are likely enforced on the iPhone (via a corporate configuration profile, mobile device management or Exchange policy).
Where passcode restrictions are set on a managed iPhone, they also affect Apple Watch. In such cases, it will not therefore be possible to turn off the watch's passcode.
If your iPhone is managed in this way, contact your device administrator for further information and help.
Credit to-Jonathan UK