I assume it is black and brown trans and non-binary people. I don't see an algorithm fail because someone identifies as anything. However, why even mention it here, in this context? It makes the people behind this sound ridiculous.
Aside from the technical difficulties with image recognition on BPoC which make this sort of tech a non-starter, I think universities and schools need to (finally) find a way to assess people that does not involve anything that can be cheated by having a book open next do the computer. Projects and papers and weekly problem sets to solve are a way better way to assess people.