What can you do? It is not your family. You have no say.
It is sad that they restrict her natural instincts. Playing with her own body is healthy. This tells me why she behaves so bad. Her parents are controlling her.

I suppose you can give her a good parenting book as a gift. (My favorite is Raiisng Our Children, Raising Ourselves, and there is Your Competent Child, The Natural Child, Kids are worth it, and, Unconditional parenting.)

Is the baby there's too? Could mum have post natal depression or has it always been this way?

Unfortunately other than tell them how there yelling at there child is making the situation much worse there isn't anything you can do really except show the girl some love, but everyone involved needs to realise that its the parent with the behaviour problem not the child and the more they take away basic comforts the more she's going to seek it in other ways...touching herself being one of them. If she can get love from you and your mum instead maybe that will make a dent in the problem and it may be the way to show her parents that a cuddle can solve an awful lot of problems.
If it gets severely out of hand I would consider calling the authorities, withholding love from a child is abuse and if they can't resolve there problems themselves then maybe some professional intervention is called for.