Sorry, I don't see your point. There are plenty of mods that require modification of both the server and the client software, e.g. if new items or game modes are added and the client needs to be able to recognize them. As long as all players on a server agree on the acceptable configurations of both, I don't see why they shouldn't be allowed to implement it for their own community.

Moreover, restricting mods to only the server side doesn't solve the trust issue: if you don't trust your players, your only option is still to try and enforce their local configuration somehow. The problem with big publishers trying to centralize this authority is their audience will always be too big to trust without enforcing compliance, and relying solely on behavour report and review system will not scale.

Even without any mods, there's a lot of trust required between the client and the server in pretty much any online game. The client has more information that it is allowed to show, and the server often trusts it reports the user's actions faithfully, because enforcing all of that on the server side would be prohibitively expensive performance-wise.