A few thoughts about the Federation

[Belhi]

The Confederacy effectively controls the Ruby Sea. That really makes it their territory. It is just that other nations don't recognise them as a legitimate governing body. In reality the Confederacy acts like one in many ways even that don't have that legitimacy. Personally I wouldn't be surprised if Hein didn't look to recognising their legitimacy. An official relation with them would be easier to manage.

I think the main reason they are shunned is because of their origins and because the territory wasn't held by them in the past and having to pay for access to a territory when one wasn't there before would be something other nations and groups wouldn't like. Remember Limsa probably had a very similar origin and early one probably wasn't greatly recognised as a more than a den of criminals (which wasn't entirely wrong).

There is an irony in prosperity leading to organisations becoming more civilised as they seek to grow further. In the quests in the Ruby Sea we see them engaging in trade and negotiating mutually beneficial deals with both merchants and the local fishing village. They also keep any other groups from messing with traders passing through which ironically makes the area safer.