IBM is buying Canadian risk analytics software firm Algorithmics for $US 387 million in cash to enhance its financial services capabilities.

IBM said the deal, expected to close before the end of October, expands its business analytics capabilities by helping clients manage financial risk.

Laurence Trigwell, IBM's head of business analytics for financial services, said there was significant demand from banks, financial markets and insurance firms for analytical insight, both to improve performance and comply with increased regulation.

"We see risk analytics as a critical component of that analytical insight, driven by market factors and events over the last 10 years since Basel II (banking regulations) and over the last three or four since the financial crisis," he told Reuters in an interview.

"(Alogrithmics') heritage in helping banks produce risk models is incredibly important to help respond to regulatory pressures."

Algorithmics' risk analytics software, content and advisory services are used by banking, investment and insurance businesses to help assess risk, address regulatory requirements and make more insightful business decisions.