Thanks for sharing tacking id.
Are you passing any key in the security tab while creating a server?
If yes, you need to set the right permission using the user assigned identity in key vault, and key vault not in vnet. In addition, key vault in vnet is not support now, they should use public access with no limit.
Here is our documentation: Set data encryption for Azure Database for MySQL - Flexible Server by using the Azure portal | Microsoft Learn
Please let us know if any question or need additional information.
Thank you!