FileVault SSH unlock fails on M1 iMac

I have an M1 iMac (2021) running macOS 26.7. FileVault enabled and stable WiFi and LAN connections.

According to everything I have read, after a reboot (power cut) the mac needs unlocking to decrypt the drive. There is a built in ssh daemon (sshd-fvunlock) to handle this remotely.

After a reboot I can successfully ping the iMac on both WiFi and LAN ip's, however when I try to connect via ssh I get this error:

debug1: Connecting to 192.168.2.5 [192.168.2.5] port 22.
debug1: Connection established.
...
debug1: Local version string SSH-2.0-OpenSSH_10.3
kex_exchange_identification: read: Connection reset by peer
Connection reset by 192.168.2.5 port 22

Crucially, the server never sends its SSH identification/banner.

Therefore the failure occurs before KEX or authentication. Username, password, public keys, known_hosts, etc. have not come into play yet.

I've tried from multiple ssh clients and different devices.

man apple_ssh_and_filevault suggests this should work and i've read posts and watched videos of it working, however i've also read posts of it not working but can not understand why.

I've tried using AI to find the problem, but we go around in circle resetting things that make no difference.

If I disable FileVault, it works fine.