This is a great, much needed feature.
I saw a profile picture on an account not so long ago that violated the Code of Conduct; I reported it, and it was instantly removed.
From my experience, this feature is working perfectly. 
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There is actually a big amount of players who don’t follow the Code of Conduct. Another thing is that some toxic people have discovered that Rec Room’s voice chat moderation is not working as well so they take this and start using strong language or verbal harassment.