The field setting "Additional Text Format/Filter" gives the impression that the text format and its filters will be applied in addition to the filters that are in the text format set for the field. The help text correctly states that it will be used "instead" of what is set for the field, but this can be easy to miss.
The project page for this module also alludes to this being an additional format instead of a replacement:
The normal per-node text format filter will always be run first so security filters are still in place. This display tweak runs an additional process as part of the rendering.
Ideally, the module would work as labeled, and the filter would be applied in addition to what is already set. Alternatively, relabel the setting to something like "Replacement Text Format/Filter" to make it clear what the setting does without the need to refer to the help text.
Update the module page to clearly communicate that this is not an additional process but replaces the text format set on the field.
Active
2.0
Documentation
If it is not getting the double-filter behavior, then yes, this is a regression. Possibly happened during the major version update when things needed to be entirely re-written.
For security reasons, yes, the admin-set filters should always be in place and run first. Field Formatter Filter is intended to be primarily cosmetic, and should not be able to override system-wide default behaviors.