The regulatory outlook for financials has improved ahead of Donald Trump's inauguration, but Greg Fleming, former president of wealth management at Morgan Stanley, said that there's more driving the sector's rally.
The financials have surged 6 percent in the past month, driving the surge in U.S. equities.
Fleming said the promise of deregulation, higher interest rates and a steepening yield curve has driven the rally in the financials. He also said he believes the Federal Reserve will raise interest rates at least three times in 2017.
"The whole zeitgeist has shifted from a regulatory standpoint, so it's not simply the legislation or the regulation that will be pulled back," Fleming, a senior research scholar at Yale Law School, said on CNBC's "Closing Bell."
"The regulatory pendulum has swung so far in one direction that I think there is enormous relief across all different kinds of businesses, not just businesses that are rate sensitive," Fleming said.
He explained that there's also a shift in perspective of regulators that will continue to buoy optimism for financial institutions and that will benefit financial institutions of all sizes.
Fleming said, however, there will be a delay in implementation and that he's not sure there will be "widespread repeal of regulation." Policies will be "fine-tuned" though and there may be some repeal of certain legislation, he said.