Moneyval approves Vatican's financial transparency reforms
But stresses that measures need to be tested in practice12 December, 11:22
Last year, Moneyval said the Vatican needed to improve in many areas.
The report said it was clear that "much work has been done in a short time to meet most of the Moneyval technical recommendations".
It said the Vatican's legal structure for combating money laundering and other financial crimes was much better but it also stressed that the new measures needed to be tested in practice.
The Vatican Bank, officially known as the Institute for Religious Works (IOR), has come under intense scrutiny in recent years in connection with allegations of suspicious activities.
Since his election to the helm of the Catholic Church in March, Pope Francis has taken steps to deal with the array of financial scandals surrounding Vatican bodies and the bank.
He signaled his deep interest in change by warning early on that if the bank could not adapt to greater transparency in its operations and adherence to international banking standards, it might even have to be shut down.
In August, Francis issued new regulations at the Holy See in a papal decree known as a Motu Proprio, part of the pope's drive to clean up the Holy See's reputation on financial transparency.
The Vatican followed that by signing an agreement with Italian authorities over the exchange of financial and banking information and the IOR has opened a website and begun publishing annual reports in a transparency drive.
In October, the Vatican's Pontifical Commission passed new financial laws designed to increase transparency, surveillance and improve regulations to bring them into compliance with international standards including efforts to prevent and fight money-laundering and terror financing.
The new laws will also boost the power and responsibilities of the Vatican's Financial Information Authority (AIF) to fight financial crime as well as providing for a stronger prudential role.
Reforms have also included shutting client accounts that were not considered to be consistent with the bank's religious mission, Ernst von Freyberg, president of the Vatican bank, said in a report last month.
It also gives the AIF "the function of prudential supervision over entities habitually engaged in financial activities," in response to a recommendation from Moneyval.
The Vatican Bank and several of its employees have been probed by Italian magistrates in the past.