The Vatican has passed a key European financial transparency test but received poor grades for the effectiveness of its new financial watchdog agency and the ability of its bank to track suspicious transactions.
The Council of Europe report released on Wednesday showed that the Vatican had received compliant or largely compliant grades on nine of the 16 "key and core" internationally-recognised recommendations to fight money laundering and terrorist financing.
But seven other areas were found sorely lacking.
The so-called Moneyval committee praises the Holy See for making so much progress in a short amount of time, but says more work needs to be done.
In particular, it says the Vatican bank, long the subject of rumour and scandal, should be independently supervised.