Could you please confirm which Cypress Chip are you using?
Are you using a custom board or any Cypress Eval board?
Sorry for the confusion.
We use 89820 for our project.
And we can reproduce this issue on the customer board.
But I think we could reproduce this issue in the reference board without external memory.
We've find this issue is resolved by below:
remove OTA_FW_UPGRADE_SFLASH_COPY, ENABLE_SFLASH_UPGRADE features in build config.
And add the OTA_FW_UPGRADE_EFLASH_COPY in build config.
Thanks for sharing!