In his 'Folk Songs collected by Ralph Vaughan Williams' (1983) Roy Palmer suggests that late 17th Century ballad writers confused the story of the English born pirate John Ward, who operated out of Tunis in the early 17th Century, with that of the later Captain Rainsborow/Rainsbrough who was sent by Charles I to Malta to sort out the Barbary Corsairs who had been terrorising the sea lanes around that island. The (presumably) villainous Ward was immortalised whereas poor old Captain R. became a ship!
I hope that I've not misrepresented the information given in Mr Palmer's book (you probably need to read it yourself). Nevertheless, his explantion of the origin of of the 'Captain Ward and the Rainbow' ballad is not a million miles from that given by Barry Finn above.