Confidential information on millions of investors is regularly being sent through the post to HM Revenue and Customs without proper security.
Investment managers in the City are required to mail personal data on their clients to HMRC on unencrypted computer disks in spite of the recent outcry over the disappearance of two disks containing information on 25 million child benefit claimants.
HMRC said encrypting the data would be a "recipe for chaos", as it would not be practical to decrypt information from thousands of different financial institutions using different coding programs.
But the body representing individual savings account (ISA) and personal equity plan (PEP) managers said the current situation was putting savers at risk of identity fraud.
Richard Saunders, the chief executive of the Investment Management Association (IMA) has written to HMRC, saying in the light of the child benefit data scandal, the sending of unsecured data could not be allowed to continue.
"We wrote to David Hartnett, the acting head of HMRC, to bring to his attention that our members were sending data in a form that we thought raised concerns about security," IMA spokeswoman Mona Patel said.
"If they are not very careful with how they handle that data, investors are at risk of identity theft. We're asking HMRC to come up with new ways of sending the data so the individuals' details are not compromised. There must be ways of doing this that are not onerous on the Revenue."
Fund managers, who handle over 8 million accounts with a total value of billions of pounds, are required to send the HMRC the name, address, date of birth and National Insurance number of every one of their investors, along with how much each individual has saved in PEPs and ISAs.
The intention is to stop people exceeding tax allowances on their investment accounts.
A spokeswoman for HMRC said it would be impractical to ask investment managers to encrypt the data before they sent it. "It's not a question of cost, but practicality. You can't have one side having one encoding system and one having another - it's a recipe for chaos."
