I tried in in several devices. It turns out the weird view happens on iPhone (tried iPhone 13 Pro Max, 11, 8 and SE 2nd gen), but it look just fine on iPad. (all running iOS 15.5)

Thanks for mentioning the pixel buffer. I changed that too kCVPixelFormatType_420YpCbCr8BiPlanarVideoRange, and I see a tangible decrease in memory usage! Thanks :)

So it's showing me that freaky view because the activeFormat doesn't support the Portrait Effect? Doesn't it sound like a bug?

Thanks for the reply. I set the "Camera — Opt in for Portrait Effect" key to YES but when I swipe up in the app to see the Control Center there is still no Video Effects" option. Also, I am calling AVCaptureDevice.showSystemUserInterface(.videoEffects) inside the app with a button but it shows me a full-screen blurred view with two camera icons (one large and the other small), nothing like the photo which I posted in the question. Any idea what is happening?

Yes, I saw that, but I am not if (for example) Watch Connectivity can be used in this case. What I need is to play the live view (from the paired iPhone) from ARKit and display it on the Watch.