I recently found out that my sister found our baby sister (4 years old) naked in a bed together with her cousin (boy, 8 years old). They were apparently touching each other's "private parts". When she asked our sister about it, she was very embarrassed, and said our cousin told her he would let her play with his toys if she did as he said. It should also be mentioned that the boy has several times played a game where he would fantasise about how a woman's breasts would be visible if he sprayed her t-shirt with water.
I have also now caught our sister masturbating twice. Once in public. She is very embarrassed about this. When I spoke to her about it (carefully), she said that it made her feel good.
I am very concerned about this, and unsure if this is just normal sexual exploring, or border's on molestation. I have spoken to both of the children about this, explaining that this is not normal, and that they cannot play like this again, but I am worried about any future implications this might have for them.