No, you haven't missed a setting - but you may have early indication of a fault within the Smart Folio keyboard...
The internal electrical connections that pass through the fabric hinges of the folio can eventually fracture - resulting in errors or other malfunction:
If you see an ‘Accessory may not be supported’ alert - Apple Support
The Smart folio keyboard itself is not repairable. The only remedy is replacement of the keyboard. If you are within your one-year limited warranty, or have an active AppleCare+ plan, you would be well advised to contact Apple Support.
You will find the Get Support link at top-right of this page.
Alternatively, you can initiate a support case using the excellent Apple Support App. If not already installed on your device, the App can be downloaded from the App Store:
https://apps.apple.com/gb/app/apple-support/id1130498044
A further alternative is to visit the Genius Bar at your local Apple Store, where the technicians will be delighted to assist. When visiting the Genius Bar, a reservation is recommended:
Genius Bar Reservation and Apple Support Options - Apple