Well, the question should be separated in 2 parts.
For trolls and soft inters the system is trash, and hardly catches anything expect the 6 tear mid rundowns. (Ye, i know i know now somebody will come here and post threads, where somebody had 500 hero damage with decent stat and got banned.) So to clarify, the system is trash at punishing troll / soft inters if they have a functioning brain. The dicks at the support do not do too much either, since manually reporting trolls resulted me in nothing, i was told they'll check it, then boom -> nothing. (BTW, if they are caught (they arent), the first punishment is 14 day ban, and perma for the 2nd.)
On the other hand, flaming and toxic chat is heavily punished, so it's pretty easy to reach 10 CR-> 25 CR -> 14day ban -> permaban with mild toxicity.
Using ZT words will put you on the 14 day ban level for the first offense (for example kys or nigerian guardian angel, and stuff like this).
what's holding the reporting system back in doing so?
Well, for soft inters and trolls it's the official reason is that they do not want false positives. The real reason is that people working at Rito do not know how the game works (average rank is silver), so they have no idea what should be punished and what not. And they are afraid to rely on the players in this regard, since "player would ban anybody for a bad game". In their opinion players are evil and want the worst for everybody else.
For chat related issues, i feel like the system is already an overkill.