Image caption The new rules bring the Vatican in line with international regulations

The Vatican has set up a new financial authority to fight money laundering and make its financial operations more transparent.

The Pope has signed into law new rules to bring the Vatican's banking regulations in line with international efforts to combat money laundering and the financing of terrorism.

The move comes ahead of an EU deadline.

It follows accusations the Vatican had been contravening international rules on money laundering.

In September, Rome prosecutors formally put the director of the Vatican Bank, Ettore Gotti Tedeschi, and his deputy under criminal investigation after receiving a tip-off from the Bank of Italy about possible money laundering.

The Italian justice authorities seized 23m euros ($30m; £19m) which the Vatican had deposited at a branch of an Italian commercial bank near Saint Peter's Square, allegedly without properly identifying either the depositor or the recipient.

The Vatican said there had been a misunderstanding and there had been no wrongdoing by their bank or its employees.

Vatican Bank Set up by Pope Pius XII in 1942

Based in Vatican City, has no other branches, operates as offshore institution outside EU rules

Headed by professional banker overseen by commission of cardinals

No shareholders, no policy-making functions

All profits set aside for charitable or religious works

On Thursday, Pope Benedict XVI signed the documents, saying the Vatican wanted to join other countries in cracking down on legal loopholes that have allowed criminals to exploit the financial sector.

The Vatican is acting ahead of a 31 December deadline to create a compliance authority to oversee all its financial operations, which is required by the EU and other international organisations.

The Vatican's centuries-old secrecy over the way it handles its money will no longer be an excuse to avoid its obligations under international and Italian criminal law to combat money-laundering operations by third parties, says the BBC's David Willey in Rome.

Exempt

The Vatican Bank - known officially as the Institute for Works of Religion - has hitherto exempted itself from international banking regulations on the grounds that it is not a real bank in the normal sense of the word, our correspondent says.

It handles accounts for the Pope, his cardinals and religious orders, and has only one branch inside the apostolic palace in Rome.

The new laws are due to come into effect by 1 April, after the new authority is set up and its members chosen, the Vatican said.

It will take some time, however, for the Vatican to be put on the so-called "white list" of the Organisation for Economic Co-operation and Development, our correspondent adds. The list identifies countries that have agreed to share tax information and crack down on tax havens.