UEFA fined Rangers and banned supporters from attending their next away game in Europe after they were found guilty of discriminatory behaviour relating to both legs of their Europa League clash against PSV Eindhoven last month.
But a second travelling ban and an order to play a home match behind closed doors were suspended for three years.
Smith, who is making way for assistant Ally McCoist at the end of the season, said: "The outcome is not as bad as we thought it was going to be, so that's a good thing. But it should be enough of a warning for people to realise the sectarian aspect of the singing has to stop.
"Hopefully that hanging over everyone should be enough of a threat for that to happen. The consequences affect the club's ability to compete so people need to realise they are not doing the club any good."
Source: PA
