Hello Everyone,
The upcoming systems seems reasonable since nation switching was happening at that historical period as well but I think these changes should come with some encouragement to switch to lower population nations and staying with your nation. Some system of rewards for representing a low population faction and reward system for loyalty to the faction. Say like 5% - 10% discount in markets if you are loyal to the faction for a long period of time or extra gold for doing faction related things or even weekly wages in gold for your long service. Something similar could be done for representing a small faction. Now these are but examples, tho I think you should stop people form abusing switching factions not by taking away something they have, but by taking away bonuses they get from a nation. Country factions could represent the role they had in that era via bonuses aswell. Pirates getting better prices for stolen goods and ships, British getting better gold for combat, nations that were more trading then fighting getting a bit more money for trading. IMO that should even out populations in factions even if just a little and encourage people to be loyal to the faction at the same time letting them switch if they truly want to do so.
Best,
Dande.