What rules are you referring to? International COLREGS refer to speed in Rule 6, Rule 8, Rule 17, and Rule 19, but nowhere is the term “water speed” used.
When ARPA first came on the scene water speed was the most common reference (speed logs) used by ships and water reference ARPA was the standard.
SIRE inspected ships are required to use their ARPAs in water referenced mode. This is an obsolete requirement. Sure, if you like, set up one of your RADARs water referenced. It doesn’t hurt anything except it fucks up true trails, which I hate to see fucked up. The tanker masters I hang out with laugh at this SIRE bullshit, and have to remind themselves to switch reference modes when the SIRE auditor comes aboard to they don’t get dinged.
Ground referenced (via GPS) ARPA is my preferred mode. I’ve never once had a vessel’s aspect so out of whack with its course over ground vector that I got confused about my responsibilities in a risk-of-collision situation, so the aspect vs COG vector issue isn’t much of an issue.