Financial reforms in the Vatican designed to end decades of scandals are now well rooted, with the number of suspicious activity reports and freezing of funds falling significantly, a report showed on Friday.

The annual report by the Vatican's independent Financial Information Authority (AIF) says the regulator is now able to turn more of its attention to vetting the transparency and accountability of donations made by outsiders for institutional and charitable purposes.

"The domestic regulatory framework is comprehensive and in line with the relevant international standards," said the report. "A robust Anti-Money Laundering and Countering of the Financing of Terrorism (AML/CFT) system is in place."

The regulator made a two-month on-site inspection of the Vatican bank, officially known as the Institute for Works of Religion (IOR), on management of assets with charitable purposes. No significant shortcomings were found, it said.

Pope Francis, who has made cleaning up Vatican finances a priority since his election in 2013, has greatly increased the power and independence of the AIF

The IOR, which for decades was embroiled in numerous financial scandals, has been overhauled in the past few years and thousands of accounts have been closed.

AIF president Rene Bruelhart said the situation meant more attention could be paid to donations from outside the Vatican.

"It's an early warning system for the Church because non-profit organisations registered in the Vatican and which do work around the world need to know that the money has a legal origin," Bruelhart, a Swiss lawyer, told Reuters.

In 2017, the year covered by the report, the AIF prompted an investigation that led to the discovery that nearly half a million dollars of funds donated to a Vatican-owned children hospital in Rome had been diverted to renovate a cardinal's apartment.

The hospital's former president was convicted of abuse of office.

In another case last year, the AIF clarified initial suspicions about the origin of funds donated by a foreign company to a Vatican-registered Catholic charity, allowing the money to enter the system.

Pope Francis, who has made cleaning up Vatican finances a priority since his election in 2013, has greatly increased the power and independence of the AIF.

The AIF said there had been a "general trend of the normalisation" of measures to prevent the Vatican bank and other financial departments from being used for money laundering.

There were 150 "Suspicious Activity Reports" filed with the authority in 2017, down from a peak of 544 in 2015 and 207 in 2016. The regulator froze only €1,757 of suspicious funds in 2017, compared to more than €7 million in 2015 and €1.5 million in 2016.

In its own evaluation of Vatican finances, Moneyval, the monitoring body of the Council of Europe, said last year that the AIF's supervision of the IOR was "now firmly established".

Last year was not completely rosy for Vatican finances, however.

Its finance minister, Cardinal George Pell, took an indefinite leave of absence to face accusations of "historical sexual offences" in his native Australia. He denies them.

In June, the Vatican’s first auditor general resigned, saying he was forced to step down amid trumped-up accusations after he discovered evidence of possible illegal activity.

The Vatican denied this, saying he was ousted because he spied on the private lives of colleagues and superiors and had misused funds.

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