It should be a tool, not an authority. Servers can choose to use it or not.
Servers using the safety rating accept only drivers with their safety rating in the specified range. With this system you can create servers accepting everyone but recording statistics for safety rating, or servers with safety rating completely disabled, or more restricted servers for good drivers...etc. That way nobody has to drive offline only and it is always possible to recover from a bad safety rating.
Servers with safety rating enabled should record some crash information every time there is a crash/spin, and send this information to LFS master server. This information then is stored in database. And if safety rating rules are changed, it is possible to compute again safety ratings for everyone using new rules on stored data. This is how it works for iRacing, because they wrote somewhere they changed the way safety rating is calculated and updated it for everyone...looks better than a safety rating reset everytime there is a change in rules.
It seems iRacing does not try very hard to find which driver is guilty. You can easily be victim of a wrecker and get a penalty. It seems unfair at first glance but the most important thing is that wrecker gets a penalty every time he is involved in a crash. On the long term, a wrecker will be involved in more crashes than a good driver, and his average rating will be lower...even if the good driver received several undiserved penalties. It works a bit like car insurances Bonus Malus System (No Claim Discount in UK). Most of time you get a penalty if you are guilty or not in a crash...seems an unfair system...but finally it makes a difference between good and bad drivers.