What is the point of asking for KYC if they are not going to approve them? (Assuming his docs are legit)

The way I see it they couldn't find any other way out and weaponizing KYC which is a flag deserving behavior.

They have the right to refuse service but that's not how you do it. Be straight.

If they did all those without asking for KYC it would be ok. By asking KYC they gave the OP a false hope. Because they weren't going to accept his documents anyway. (Again, assuming his docs were real and he is not lying)