System-owners still have the right to enforce their own rules in their own system when it comes to characters without the proper tag and ID. I believe they're allowed to do pretty much anything to anyone, trader or otherwise, that they find, up to and including blowing them to tiny bits or placing them on a KoS list if they refuse to leave and never violate the sovereign space again. That's some power right there. Just look at the TAZ and the power they control through Baffin, even if they rarely restrict access.
But as Jinx said, factions are more about RP enjoyment than power. Faction systems are a chance to add something permanent and potentially awesome (as the really well-made faction systems tend to be) to Discovery.
If someone's really a 'lolwutter', then they can be sanctioned for ooRP behavior, ooRP is system chat, etc. If you can't come up with the evidence for a sanction, then he's not a lolwutter.
