Also happens on a brand new M1 Max with the latest stable OS (12.12.1) and XCode (13.2.1) when creating a completely new Watch App.

This happens to me too only since some hours ago for two of my projects. I submitted one of them this morning successfully already - only made (really) minor changes since then. Did something change? Maybe it has something to do with iOS 16 being revealed some hours ago? Is anyone experiencing similar problems out of the blue since today?

Seems to still not work when using Audio (playback) as background mode. Too sad, makes it useless for now for round-based timer apps or anything similar.

Also interested in this if someone found an solution already.