I believe you will find that is only while it is connected to your iPhone and it is unlocked - and you can change the setting that allows that
As to what Apple is aware of - no one here has an idea - you can always tell them - https://www.apple.com/feedback/watch.html
Passcodes on the Apple Watch can be bypassed by entering your iPhone passcode or using Touch ID on your iPhone. You’ll be asked if you want this functionality when initially setting up your Apple Watch, but you can always go back into the settings on your iPhone or on the Apple Watch to change this.
To configure Unlock with iPhone from the Apple Watch companion app on iPhone, do the following:
Open Apple Watch app on iPhone → My Watch → Passcode → and enable the Unlock with iPhone switch.
To configure Unlock with iPhone from the Apple Watch itself:
Settings → Passcode → and enable the Unlock with iPhone switch.
There are some things to keep in mind, however. If you remove the Apple Watch from your wrist, or even if you wear it too loosely on your wrist, Apple Watch will detect this and ask you for the passcode the next time you try to use it. When the passcode number pad appears on the Apple Watch screen, enter your passcode to use it. Or, if you prefer, you can put the Apple Watch back on your wrist, and unlock your iPhone to automatically unlock the Apple Watch. This is assuming that you have the Unlock with iPhone option enabled in the settings.Unsurprisingly, Apple allows you to alter the Apple Watch’s wrist detection security feature. I don’t personally recommend turning it off, but it’s possible.
Open Apple Watch app on iPhone → My Watch → General, and toggle the Wrist Detection switch.
Not only does disabling wrist detection make your Apple Watch potentially less secure, it also removes the convenience of being shown the latest alerts and time when you raise your wrist.
LN