According to an Apple support page about the issue, the bug affects older iPhones with Touch ID and prevents users from using their iPhone to unlock their Apple Watch. Instead, you’ll have to unlock your Watch manually by entering your passcode.
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“If you experience this issue, just type the passcode directly on your Apple Watch to unlock it. This is required only one time, as long as you keep your Apple Watch on your wrist. If you forgot your passcode, you need to reset your Apple Watch,” Apple said in its support document.