That sounds very much like a cultural thing. Here in the Sound (the strait between Denmark and Sweden), the norm is definitively to fly a flag with so many different nationalities sailing here. In Sweden it is also required (through not punishable) to carry a flag if you are around the port, when in visible range of the coast guard, when in foreign waters, and when in visible range of other ships in international waters. The only exceptions to those requirements is participation during sports events.

With the trouble brewing with the Russian shadow fleet in the Baltics, flying a flag seem quite important unless you want the coast guard to stop you (they have also increased their presence significant the last 5-10 years and do a lot of random checks).