I would not be happy about this.
He may or may not be sexually abusing her, it's impossible to know from what you've said. While it's not likely, it's not at all impossible so of course it's something that is there to consider. What she said is definitely concerning. Why would she think about being touched?
However, he does sound generally emotionally abusive towards her from what you say, and there appears to be an element of that which is physical - making her be a part of him, physically - enveloping her - a general possessiveness - arms crushing in bed, in the shower right up close. Not good for her, not encouraging any independence and , most importantly, giving her a generally poor sense of physical boundaries and making her less safe. If that goes hand in hand with a desire to alienate you from her then it's worse. All of it's damaging for her.
If I were you, I would be speaking to someone, bringing up the touching comment, his background, but making it clear that I had no proof that he may be sexually abusing her and that my more concrete issues are the generally poor physical boundaries, inappropriate possessiveness, parental alienation tendencies etc. If he's taking you to court, I'd be saying that I didn't agree with more time at all and at the very least would push for some kind of joint parenting meetings where you could describe your concerns - that he should be fostering physical independece, that he should be mindful of demonstrating to her that private parts are private etc for her own sake and safety, and that most of all he needs to show to her that he is a good co-parent, no slagging off Mummy etc. All these things are important for HIS relationship with HER.
In private? I would be watching her like a hawk for any signs that he may be abusing her. It's more common than any one of us would like to think, sadly most common with a person known to the child.