Protected custom metadata fields might be considered insufficient for storing sensitive data during security review because they can be accessed and modified by the org admin and other packages or untrusted code within the subscriber org. This lack of isolation and control over access makes them unsuitable for securely storing sensitive information.
In contrast, protected custom settings offer better isolation and control over sensitive data. Additionally, protected custom settings lack built-in GUI interfaces, requiring custom code for updates, which enhances security by limiting access to authorized users only.
However, when implemented correctly with proper permissions and encryption, storing secrets in Protected Custom Metadata records can be a secure and compliant method for storing third-party service credentials. For the highest security, consider using Named Credentials, which provide built-in credential management and are specifically designed for storing authentication information for external services.