I agree; insurance is the real issue.
Regarding a prosecution, the licensing interactions are so complicated to unravel that I don't believe there is an airport ramp policeman in the world with the brain to work them out, and that assumes you can communicate with him in English or whatever...
I can imagine a policeman having a briefing pack telling him to check for a US or locally issues license if he sees an N-reg plane. If I was in enforcement that's what I would do.
For sure, those who got caught for flying with the wrong papers or not carrying a DME etc are not going to write about it on pprune; people rarely write about run-ins they have had. Not that I think anybody has ever been done for that kind of thing, anywhere in Europe. But that isn't the risk.
I can imagine if you p*ssed off the CAA in some blatent way then they would go after you specially - that is standard police behaviour.