You’re right.Exactly.
To qualify for a UEFA competition, you need to do the business on the pitch and also have your house in order off the pitch.
Palace have done the first bit, but completely neglected the second bit.
It's not a surprise that has been sprung on them, though - all clubs know the rules - Palace chose to ignore them. Presumably because they thought there was little to no chance of them doing enough on the pitch for it to be a concern.
But since when has that stopped UEFA?