Holy See passes financial transparency test but is judged 'non-compliant' or 'partially compliant' in 23 of 45 areas

The Vatican has scraped through an independent international test of its financial transparency.

The Council of Europe said it was either "non-compliant" or "partially compliant" in 23 out of a total of 45 areas. But its report showed the Vatican had received "compliant" or "largely compliant" grades on nine of the 16 "key and core" recommendations for combatting money-laundering and terrorist financing.

The report says the Holy See still has to make important reforms before it can reach international standards of financial transparency. The Institute for the Works of Religion (IOR), popularly known as the Vatican bank, was at the centre of an international scandal over alleged money-laundering and shady banking practices in the 1980s and it was not until April 2011 that the Holy See passed a law aimed at improving its financial transparency.

The Council of Europe's committee of experts, known as Moneyval, said: "The Holy See has come a long way in a very short period … But further important issues still need addressing in order to demonstrate that a fully effective regime has been instituted in practice."

The Vatican's hopes of making it on to an internationally recognised "white list" of compliant states were dealt a heavy blow in May when the board of the IOR sacked the president and accused him of neglecting his duties. He was said by insiders to have clashed with the Vatican's top official, the secretary of state, Cardinal Tarcisio Bertone, over – among other things – a revised law on financial transparency that came into effect in January.

Moneyval paid tribute to the new law, which, it said, "introduced a significant number of necessary and welcome changes". It nevertheless criticised it for introducing a lack of clarity in the key area of investigating suspect transfers to and from the Vatican bank.

Monsignor Ettore Balestrero, the Vatican's equivalent of a deputy foreign minister, said the report was "not an end, but a milestone in our continuing efforts".

He told a press conference: "We have taken a definitive step to lay the foundations to a structure – a house, if you will – that is to be a robust and sustainable system to combat money laundering and the financing of terrorism.

"Now it is our wish to fully construct a building that effectively shows the Holy See's and Vatican City state's desire to be a reliable partner in the international community."