We changed schools partially because of a reading policy like the one you described. They drilled in to the kids that they had to read the books they brought home from school that were "just the right level" and they had to record the titles of the books they read at home in their reading log, so "substituting" reading material was difficult. They were told they had to read the books they brought home for their homework, and that they could spend additional time reading other books, but only in addition to reading the assigned books.
My twins would insist they "had to" read those books for their homework because they would get in trouble if they read something else. One of my twins went from really enjoying reading to hating it because of being forced to read early reader books over and over both in class and at home in first grade.
I may be totally off base, but it seems to me to be a way to try to force "evening out" of the children's reading levels, or at least the perceived reading levels.
After we changed schools, both twins reading levels were assessed to be 3-4 years higher than the levels previously reported by their previous school.
