Disable fn-keys for bluetooth keyboard
This appears to be a problem across any number of BlueTooth keyboards designed for iOS when you use them on a Mac. I tested three and all have the same problem.

Attempting to fix it is difficult if not impossible since some testing with my favourite key code tool, Key Codes, shows that the OS is intercepting the keypresses before it gets to the keyboard system.

It's not a BlueTooth problem as two different BlueTooth keyboards designed for a PC allowed the setting to work. For example, the Shintaro Mini I use with my Mini media centre works fine.