It's a little more in-depth than that.
The leadership shut everything down because they felt the story devs were deliberately screwing over Rheinland lawfuls by forcing them into a Sigma war for the benefit of Bretonia, among other things. Let's not get into how the Sigma War came entirely out of left field because of how close Rheinland and Kusari were, down to having 90% techcell on each other's civilian shippies.
(in lore, a Rheinland fighting Kusari isn't a Rheinland rolling up with its now most powerful military in Sirius and eating Bretonia in one fell swoop after Bretonia just barely fends off Gallia by the skin of its teeth)
Rather than play that game, they just took their ball and went on with their lives away from Discovery, disbanding the factions because none of the players in that faction would still be around as that faction.
