I'm not sure what you're saying went wrong in that process. You were the one who wanted a compliance mandate reversed, so who should have talked to the compliance department about it if not you?
Rather that IT would have implemented a change even if they thought it didn't make any sense just out of fear of falling foul of some internal policy. What I say is that large organisation are pleagued by people doing things that are counterproductive either because they don't care, don't understand, or live under the fear of breaching some internal policy, instead of doing the right thing, challenging these policies when it makes sense.
You're not wrong, but I think you're looking at it backwards. Policies are just codified decisions - and large organizations make a lot of decisions. If everyone second-guessed every decision they didn't personally understand, there'd be no time left to get work done.
There should have been push-back on the change before it got to the implementation stage. It shouldn't be down to the implementor to query the decision (as they won't have full sight of all factors). That querying should have happened at the management level.
When a nonsensical requirement reaches implementation, it indicates that all the gatekeeping in place before this stage has failed.