The report, by Moneyval, a department of the Council of Europe, suggests the Vatican still has a long way to go before it can be included on an international "white list" of countries that abide by global norms on combatting money laundering, the financing of terrorism and tax evasion.
It was particularly pointed in its criticism of the management of the Vatican bank, officially known as the Institute for Works of Religion (IOR), and "strongly recommended" it be "independently supervised by a prudential supervisor in the near future".
"Fit and proper criteria" should be applied to senior management at the IOR, it said.
The report comes at a time when the Vatican is battling to limit the fallout from a widening corruption scandal, with Pope Benedict's butler suspected of leaking sensitive documents that allege wrongdoing in the Vatican's business dealings with Italian companies.
Italian magistrates are now investigating the IOR, the head of which was ousted in a dramatic boardroom showdown in May.