Yes, that's how the system works, and currently no option to move the downlines or restructure the member automatically. We will keep monitoring what options for this condition are mostly demanded by users and see the better option to implement in the future version.
If you want to move the member position, you can try to manually move them from Admin CP, edit member features.
Regarding the maximum referral option, it's used for a newly registered account and does not affect the account that is been registered.