I know someone who's dyslexic who's now working on a PhD! She had problems at school, but with extra help in the early days, learning coping strategies, and lots of determination, she seems to have overcome most of the difficulties.
There are indeed lots of levels of dyslexia, and some people are better at dealing with it than others. You can't generalise. It depends on the individual. The label often doesn't help, because then we start talking about disability and making judgements and completely muddying the waters. I'd say treat this student like any other, giving him extra help with what he finds difficult, and see what happens. The chances are he can read and write to some extent, just not easily. So he can work on the exams, and he might have to work harder than most other people. So what? We all have things we struggle with.
Unless things prove to be more complicated than this I'd leave well alone and not contact any authorities right now.