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Most policies for products are not designed to work as User Based Policies; FRP is the exception to the rule as it has many User Based Policies.
A policy can only be used with Policy Assignment Rules User Based Policys if the policy can be enforced on just a specific user session. If the policy is enforced at a lower level and affects all users it can only be used as a System Based Policy. Because the Encryption Options policy applies to the entire system, it cannot be applied to a single user session thus it cannot be used as a User Based Policy.