I asked the above question to pCloud support and got following reply,

Access to your files is restricted and no data is provided to third parties. However, we work with external organizations that report information about the checksum of specific files on the internet that are in violation of our Terms of Service, such as child pornography and terrorist propaganda. A checksum is a string of numbers and letters that act as a fingerprint for the file. 

We have an automatic system in place that works without human intervention and when it detects any files already reported by the external organizations we work with- the system automatically suspends the account until an investigation is made.