+xdai as you've done work on the wallpaper side lately - do you have an idea?

It looks like WallpaperManager::SetCustomWallpaper[1] should block this if the wallpaper has been set by policy.

[1] https://cs.chromium.org/chromium/src/chrome/browser/chromeos/login/users/wallpaper/wallpaper_manager.cc?l=604&gs=cpp%253Achromeos%253A%253Aclass-WallpaperManager%253A%253ASetCustomWallpaper(const%2BAccountId%2B%2526%252C%2Bconst%2Bwallpaper%253A%253AWallpaperFilesId%2B%2526%252C%2Bconst%2Bstd%253A%253A__1%253A%253Abasic_string%253Cchar%253E%2B%2526%252C%2Bwallpaper%253A%253AWallpaperLayout%252C%2Bwallpaper%253A%253AWallpaperType%252C%2Bconst%2Bgfx%253A%253AImageSkia%2B%2526%252C%2Bbool)%2540chromium%252F..%252F..%252Fchrome%252Fbrowser%252Fchromeos%252Flogin%252Fusers%252Fwallpaper%252Fwallpaper_manager.cc%257Cdef&gsn=SetCustomWallpaper&ct=xref_usages

For information I've tried working around this by blocking settings and just allowing chrome://settings/printer for e.g. - but as soon as a user goes to this url they can access all of settings and launch the wallpaper app. The restriction on settings only kicks in once your refresh the settings page.

So essentially the wallpaper policy (user) is pretty ineffective if you allow settings.

Could you please check on chrome://policy which of the following policies is set:
WallpaperImage
DeviceWallpaperImage
?

Thanks!

Device wallpaper:
{
   "hash": "64ccdef18fbc1285af9b2ad7a68c13f00dee4c94b3ebc35b17cba09561721b8a",
   "url": "https://storage.googleapis.com/chromeos-mgmt/0gjdgxs29rdb6t/ChromeOsWallpaper/8227e0bc-1e85-46f6-949d-0f4a9730c54f"
}
Wallpaperimage
{
   "hash": "64ccdef18fbc1285af9b2ad7a68c13f00dee4c94b3ebc35b17cba09561721b8a",
   "url": "https://storage.googleapis.com/chromeos-mgmt/0gjdgxs29rdb6t/ChromeOsWallpaper/91a66b19-3b54-4af2-97dd-854c70d6f618"
}

While this hide - right-click on the desktop - you can just launch the wallpaper app from settings instead.

FWIW I couldn't reproduce on dev channel with either WallpaperImage or both WallpaperImage and DeviceWallpaperImage set, but this could be an issue in older builds.

If xdai@ doesn't have an idea, I'll try to grab a M-60 device and retry there. 

Happens on the beta channel 62 on a N23 Yoga and any device I've tried on
the stable channel v61 and lower.

R D Nixon, Director of ICT

Wheatley Park School, Holton, Oxford OX33 1QH | Telephone: 01865
872441| Direct:
07722868036

Just for clarify - a video of the issue I'm describing:
https://drive.google.com/file/d/0B0vcQ-UNCMvIWjV6VERXeVR6Nm8/view?usp=sharing

R D Nixon, Director of ICT

Wheatley Park School, Holton, Oxford OX33 1QH | Telephone: 01865
872441| Direct:
07722868036

Thank you, that helped! I was able to track down the code changes and found out that this has been tracked as  bug 749755  which appears to be fixed in M-62. I'll merge this into that issue. 

Just for info - that video was done on beta 62

R D Nixon, Director of ICT

Wheatley Park School, Holton, Oxford OX33 1QH | Telephone: 01865
872441| Direct:
07722868036

According to the other bug, this has only been merged to M-62 13 hours ago, so it won't be in the beta builds yet, but should appear soon.