Just a quick note for those that didn't notice:
When iPad Pro is connected to the keyboard of an iPad Smart Keyboard Folio, Universal Control will not work.
I had to put a tape on iPad's back contacts to make it work, since I just wanted to drag files from iPad to the Mac.
What iPadOS vs macOS version are you using? I have similar experience using Universal Control with Smart Folio Keyboard.
The Smart Folio Keyboard cannot be used as a keyboard in Mac. And when the cursor is in the iPad, and I started typing in Smart Folio, the cursor moves back to Mac.