That colony wasn’t a member of the Federation, though.

But they have discussions about it in the episode and no one brought up any laws about it. Picard even says he disapproves of it personally but says nothing about it being banned.

One could argue that’s not an augmentation.

From Dr. Bashir, I Presume: "DNA resequencing for any reason other than repairing serious birth defects is illegal."

The Doctor specifically said that many of the modifications Torres wanted to make had nothing to do with the baby's health.

He was not under investigation for being genetically modified. I think a key aspect of this episode and that episode is that Julian and Una were both under investigation for concealing their status as genetically modified. Neither of them faced any penalty for having the modifications done.

It is only Mr. Bashir who is punished for seeking out and obtaining genetic modification for his developmentally delayed child. Being genetically modified isn't a crime and I don't think it was ever depicted as such - but having a genetic modification done is a crime. And having one done on you prevents you from joining Starfleet in some cases. Although for all we know Ilyrians are given exception to genetic modification rules as long as they're honest about it, but no human has ever gotten an exception so Julian lied to protect his parents and to ensure he'd get into Starfleet.

Which actually contradicts a TNG episode where the Federation had an entire research facility dedicated to creating genetically enhanced children with super powers like immunity to disease, telekinesis, and rapid maturity.