My understanding is that the SI only covers licences, certificates and approvals valid at exit day until their expiry date, this is what "up to a maximum of 2 years" means. Also the UK CAA do not intend to maliciously suspend or cancel, this clause would only be used if a UK licence would otherwise be suspended etc. They are applying the SI quite strictly though, when it suits them, so that 'licences', which have no expiry dates will be recognised for the full two years whereas ATPL theory passes from, say, Austro Control, will not be recognised beyond exit day because the Austro authority to examine which rests on their designation as 'competent authority' for a Member State is not a 'licence, certificate or approval'. Thus candidates going for a UK licence who have so far completed their exams with Austro must switch over to the UK CAA to complete their exam series.Revenue switches back to the UK CAA.
The question of the Frenc DGAC not recognising UK issued licenses to fly French registered aircraft is separate, I think.