The prisons service is adhering to the Gender Recognition Act, so transwomen with a Gender Recognition Certificate are treated for all purposes as being legally female, including for the purposes of sex as defined under the Equality Act 2010 (and therefore any single-sex exemptions under the EA).
Because of the GRA, they can't even record that a person with a GRC is trans unless that person identifies themselves as trans to them, as the point of the GRC is to ensure that person is treated as the biological sex they identify as. They say that even when a prisoner has a GRC, they manage the risk carefully and that this may include housing them in separate accommodation where deemed necessary. As we know, they don't always get this right, and only the people on the inside know how often they actually get this wrong. Not least as any assaults on female prisoners by transwomen with GRCs are recorded as female-on-female assaults, because of the GRA.
No-one knows how many biological males are in female prisons as the GRA has prevented the prisons service from recording this statistic since those transwomen are counted as female for all legal and statistical purposes. So literally no-one knows how many transwomen are in female prisons - not even the prisons service.
In addition to prisons having to adhere to the law in respect of trans prisoners with a GRC, the prisons service has also decided to take the approach that any male who says they identify as transwomen should be housed in the women's prison, unless the risk is deemed too high. They are housed in the prison matching their "legal sex" initially, but then can request to move across to the women's prison if they say they identify as female.
There's obviously no objective way to verify if what they say is what they genuinely feel, plus we're talking about convicted criminals (and often sex offenders) here. But their case is taken to a board who decides whether the person is genuinely a transwoman on the basis of various factors set out in Annex B of their transgender policy, which advises the board to have regard for whether the prisoner's mannerisms, hairstyle and use of prosthetics seem sufficiently womanly, but also helpfully reminds the board that the prisoner might not come across as particularly womanly because they don't have the confidence to do so and wouldn't be able to gain access to the props necessary to dress like a woman given that they are in prison.
So if they say they're a woman and act like it, or if they say they're a woman but don't act like it, they could be a genuine transwoman.
Other deciding factors include changing their name to a feminine-sounding name and updating their bank cards and driving licence to reflect this. Oh, and also, if they've been consistently using women's single-sex spaces (not sure how that squares with why they might be in prison in the first place, but that's for the expert womanness board to grapple with).