No one grasses you up. Your ISPs are NOT monitoring anything (unless your stupid enough to abuse the network with an
insane amount of traffic)
Quite simply put, the music and movie industry, themselves, use P2P, as an example we'll use BitTorrent and Universal Studios.
Someone uploads a torrent of a latest universal release, universal spot this, hop on the tracker and get the torrent, they download it, and then proceed to seed/upload the file, as you can imagine, with the way P2P works, they get many many IP's connecting into them, all they need to then do is note down these IP addresses, wait for them to get the whole film (proof of illegal downloading, with hard dopy evidence in the form of logs) then it they're really picky, they can see if, and for how long the user then proceeds to share the file (proof of sharing a file).
Once they have this information, a standard issue Cease and Desist action is forwarded to your ISP, it is then up to your ISPs discretion what to do, the majority will simply forward the email on, others will send a written warning to be more formal.
I have heard of people getting these letters and emails from ALL parts of the world, don't think that you're safe because you're in the UK, and keep it mind, warnings are issued completely 100% regardless of what ISP you use.
With all that in mind, the biggest protection you can have is DON'T DO IT!