Inner-faction arrests, can, as well as outer-faction arrests, be skillfully determined. I believe I'm making no sense with that sentence, but I mean that you can set your arrest options to respond a certain way to benefit your specific a/e skills. I hope that makes more sense. It is likely that you had 'inner-faction' arrest set to 'none', meaning that whenever someone in your faction would try to arrest you, they would be able to do without any form of resistance on your side.
While I personally am aware of Templeton's atrocities and have my own thoughts about it, I'll do my best tp keep this spam-free.
So to answer to an issue you mentioned, 'other factions' basically bow to the Government factions. Using Bounty Hunters Guild as an example. Say, they own Planet X in system X, but sector X belongs to Falleen Federation, they may arrest on their own capital ship, just like every other faction may do (correct me if I am wrong). However, if the scene takes place on a planet, then Falleen Federation may do arrests, even if they do not own the planet (because a faction that is not a Government controls it).
So a/e wise, a government has more playroom than factions that are not a government.
____________Time to go to war with the Flame Tigers