Reminds me of a quote I have always enjoyed:

“We know no spectacle so ridiculous as the British public in one of its periodical fits of morality.” Thomas B. MacCaulay

As people have already pointed out, this is clearly not an issue of the effects of testosterone on the body. So you are right in the sense that this policy can only be defensible on equity grounds.The overlooked issue with the argument that the organization is providing an equitable space for feminine presenting individuals coming up through a system that is overwhelmingly make dominated is that under the current policy, transmen are having their women’s titles stripped from them unless they officially change their designations back to women. Only then, their awards would be restored. Suddenly presenting as male due to testosterone does not immediately negate the past experiences. If this policy is really about recognizing the challenges of climbing the ladder in chess as a feminine presenting individual, then these transmen who are also transitioning later in life should be allowed to keep their hard earned titles. Unfortunately, this policy is not actually about acknowledging the challenges of being a feminine presenting chess player. It smells like the organization wants to be able to claim they are acting equitably without thoroughly thinking about the logic of the policy. Whether people like the policy or not, or whether it is morally right or wrong is irrelevant. Well-crafted, consistent policy is much easier to defend. This policy is neither well thought out or consistent.