The WT_CURSTD_UPDATE_LOCAL flag as added as a performance optimization for the LAS table in WT-5120, and changed WT_CURSOR.update to search a pinned LAS page before doing a full tree search. The flag is no longer used, it was removed as part of WT-5478, the work to insert records directly into history store without a transaction.
The flag can be removed from the WT_CURSOR.update code.