Every tenant starts at some point without having references from a previous landlord
Some landlords do hold back part of deposit for various reasons and tenants may contest - you can ask potential tenant their side of the story, and for details of previous landlord to obtain theirs. It’s like anything else in the referencing process- you can always ask for more info. What exactly was the dispute /what did LL neglect to do and what did they try to withhold from deposit and why? What did deposit scheme decide? You can say that you don’t want to judge but it will help to understand what the dispute was about properly as you don’t want it to happen again so you and potential tenant need to try to have same expectations on whatever sort of issue caused it (cleaning or maintenance or whatever).
It could be something very simple (eg a 1st time tenant who didnt know they have to behave in a tenant like way and do basic repairs like replacing lightbulbs) or something more serious eg somebody who is persistently late paying or didn’t report problems promptly so they ended up costing much more to repair. Referencing has flagged an issue it is reasonable to find out more. If they won’t explain themselves, it’s a big red flag. (Just like if report showed somebody had a history of late payment or CCJs you would ask to try to understand whether whatever caused their financial problems us still an issue or not)
Rental insurance is one possible mitigation, so is a guarantor. So is increasing the proposed rent to account for cost of insurance and (if they won’t provide details or an explanation) frankly the extra risk of a tenant who has had issues with a past LL but won’t say what these are - personally in that case I’d just find someone else. we can’t expect every tenant to have a perfect track record tho, depends on gut feeling sometimes.
Ps 6m in advance won’t be legal under RRB which will come into force v soon and not sure if retrospect nature of RRB will mean you have to return it or if tenancy will stil be legal if you keep it - be v careful about this get advice from people more expert than me. There are some ‘professional tenants’ exploiting rules see eg Set-up by tenants!
Good luck!