Philip Hammond has pledged to maintain free movement for top bankers after Britain leaves the EU, as he attempts to reassure the City that the financial services industry will be protected during Brexit negotiations.

The chancellor, responding to pressure from Japan and leading banks, promised to maintain a flow of European talent to UK-based financial services companies, regardless of new rules to curb EU migration.

Mr Hammond also warned EU policymakers that they would harm their own interests if they tried to use Brexit to undermine the position of London as the continent’s principal financial centre.

He insisted that post-Brexit controls on free movement should “not strike fear into the heart of Japanese financial institutions”, as he responded to pleas by Tokyo to ensure that EU nationals could continue to work in Britain.

Referring to free movement control, the chancellor told a House of Lords committee: “We would use it in a sensible way [to] facilitate movement of highly skilled people between financial institutions and businesses.”

Further reflecting the government’s desire to minimise any commercial damage from Brexit, Theresa May on Thursday told European Council president Donald Tusk that the UK was anxious to make its departure a “smooth process”. Downing Street reiterated that Britain needed time to prepare its exit from the EU after Mr Tusk tweeted ahead of his Downing Street meeting: “Ball in UK court to start negotiations. In everybody’s best interest to start asap”.

While formal divorce talks are expected to take around two years, both sides recognise that agreeing and ratifying a deep trade deal could take five or more years, raising the question of how to avoid a Brexit cliff-edge for business.

In Mr Hammond’s testimony on Thursday, he also challenged the assertion by Charlie Bean, former deputy governor of the Bank of England, that London would lose euro-denominated clearing after Britain leaves the EU.

Clearing of swaps is a cornerstone of the City. The UK takes the lion’s share of trading in euro-denominated swaps, which represent a third of the $3tn global interest rate derivatives market.

Mr Hammond said that clearing in London was a “massive business benefiting from huge economies of scale”.

He said any attempt by the EU to split off euro-denominated clearing would not benefit the EU, with business instead drifting to New York.

Officials familiar with discussions in Brussels privately say the real target is LCH’s SwapClear, the London clearing house controlled by the London Stock Exchange Group, the world’s largest clearer of over-the-counter derivatives.

Meanwhile Mr Hammond announced that his first Autumn Statement, expected to contain a package of measures to boost infrastructure and housing, will take place on November 23.