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I have the same issue except it's just my iPhone that says I need to "update Apple ID settings." It asks for my password and the password of my MacBook Pro. Then it says verification failed when I successfully type in the MacBook Pro password.

Hopefully it's resolved tomorrow. It's affecting me setting up my HomePod mini.
 
Like many on this thread, we were able to get one of our kids Watch SEs to authenticate after two tries, but our other child's watch has been hanging up all day on the passcode. Wish we'd seen this thread earlier as we've tried pretty much everything possible finally concluding it was probably a faulty Watch. We'll try again tomorrow but will check the Apple System Status page for the iCloud Account & Sign-in Issue and this forum beforehand. Good luck, everyone!
Trying again this morning (9.15GMT) but still no joy. Following the check you suggested, it seems the iCloud page is reporting a problem which is ongoing.
 
I have had the same issue when attempting to verify my Apple ID in an M1 MacBook Pro I received on Christmas Day - the issue persists on Boxing Day. The system repeatedly tells me it cannot verify my password or passcode on the apple device I have chosen. There is a lot on the internet about verification failing because of an inability to communicate with servers but not for simply being able to verify the code. Heres hoping it is just too much traffic and will settle.
 
I have had the same issue when attempting to verify my Apple ID in an M1 MacBook Pro I received on Christmas Day - the issue persists on Boxing Day. The system repeatedly tells me it cannot verify my password or passcode on the apple device I have chosen. There is a lot on the internet about verification failing because of an inability to communicate with servers but not for simply being able to verify the code. Heres hoping it is just too much traffic and will settle.
I was finally able to verify on my MacBook, so eventually it will work! I spent most of Christmas Day messing with it though 😭
 
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The outage is still happening. You can keep checking back at https://www.apple.com/support/systemstatus/.

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14.41 St Stephen's Day. verification of passcode still not working for family set up in i watch :-(
 
Dec 26th in ATX and having this exact issue. One kids activated fine. The other is unable to verify the pass code.
 
This is now resolved for me. I was able to activate and set up both kids' Apple Watch SE.

Walkie-talkie invite doesn't work (either direction), but I don't think that is related.
 
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Okay, great news. This seems to be resolved. I just setup my daughters Watch. The Apple Dashboard is still showing the iCloud issue, but they seem to have fixed the authentication bug.
 
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God to learn verification is working for some in US. Still not working in GB :-(. Surely it cannot be anything to do with Brexit, we have now negotiated a deal with the EU ;-)
 
Still getting errors in California. But, it’s promising news that some people are getting activated. I’ll try later today
 
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Just tried here in Michigan with my son’s new SE and it still sits on the sign in screen after entering his iCloud password (setting up with family sharing) and still no dice. Have tried about a dozen times since yesterday. I’m understanding as it is a holiday and the load to the servers is high, I imagine, but this is getting a bit frustrating.
 
Still no luck in IL. I can get the iCloud sign in to go through, but it always errors out when I enter his iPad unlock pin on the Watch. I tried in the wee hours of the morning today too hoping the servers would be less busy, but obviously they’re not.
 
Just tried here in Michigan with my son’s new SE and it still sits on the sign in screen after entering his iCloud password (setting up with family sharing) and still no dice. Have tried about a dozen times since yesterday. I’m understanding as it is a holiday and the load to the servers is high, I imagine, but this is getting a bit frustrating.
I don't think it's a load issue, seems like an authentication bug in iCloud. Probably needs to get pushed out to all servers before it will work for everyone. Keep at it and good luck!
 
Still no luck -- all my Apple devices show a red dot in iCloud settings and tell me to update my Apple ID settings. Doing that fails every time from any device. I'm in California, less than 20 miles from Apple's HQ...o_O
 
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