I have the new MacBook Pro M1, and it had that problem too after upgrading to Monterrey. It started to work again once I went to System Preferences, Battery, and uncheck the box Optimize battery charging. Once the battery is charged over 80%, the Touch ID started working again. But after this, I have not tried to unplug the charger and let the battery go lower than 80% to see if Touch ID will start failing again. Still a work in process to make sure that was the problem, but even if that was the problem, we do want the computer to be able to use its battery down lower than 80% or what's the point having a battery, right?