This XP system is ridiculous. It doesn't even allow him to fight monsters or genuinely bad people, hell it even punishes self defense.
Well, in some cases, it really does seem ridiculous, but here, it wasn't self-defence. He has all the capacity to protect himself of harm without harming others through shields. It was entirely unnecessary to assault his opponent for his self-defence.
The loss of XP here is something that he should reflect on. He initially tried to show that the armor was flawed by taking someone's else attack, but that's putting himself in danger. Then he showed how easily he could break the armor by attacking, but he harmed someone. Finally, he broke the armour he was wearing to show how fragile it was before his attack. If he had started with that, he could have avoided this whole nonsense without harming anyone.
For the other cases, consider that he was a genuinely bad person who even let a demon possess him and that he is now given a chance to not commit the same mistakes. If he harms a bad person, he gives them no chance at redemption. The system is pushing him to be a saint, and that means responding to harm with creative levels of non violence (Much like Jesus advising to turn the other cheek).
I'm not sure exactly what monsters are, but perhaps they're mostly just animals who have magic. The thing is, humans are quite the invasive species of animals themselves who occupy and take over all habitats, so in our world, we have plenty of endangered species that we now need to protect even if they used to be dangerous for us (e.g. wolves). Perhaps even with monsters, coexistence is possible and that is what the system favours.
Of course, I, as anyone with common sense, do personally find the system's strict adherence to non violence to be absurd (I think meat is an important part of my diet and there's killing involved to obtain that meat), but I'm also no saint.