This is standard in most platforms with social features, companies record chats in case someone gets reported for negative behavior. It's also temporarily stored so they're not just listening in and hoarding your chats.
The terms also lay out that "these recordings are available only if the report is submitted within 24 hours," suggesting that recordings are deleted from local storage after a full day.
Switch 2 can probably reach those numbers if the games were updated, currently it's just running the Switch 1 versions of those games which are capped at 30FPS and a lower resolution.