I discussed this with our Product Manager. Here's what we came up with, please confirm if you would like to have the below implemented or if it does not meet your needs before I file this feature request in 2 weeks:
Call for Comments
The ability for cPanel users, when logging in via SFTP, to browse above their directory is both undesired and unnecessary in contemporary cPanel&WHM hosting environments. To get around this, we should implement a chrooted environment.
Being mindful of the many servers still running CentOS 5, we cannot implement the chrooting abilities specific to CentOS/RHEL 6. However, we may be able to do this by using ProFTPd for SFTP as it has supported chrooting for a very long time and has already established a record of being compatible with cPanel&WHM environments.
Note, ProFTPd does not natively accommodate OpenSSH keys, often used on SSH. However, as documented on
ProFTPD module mod_sftp these keys can be converted to a format compatible with ProFTPd. This is an understood limitation and is considered something that could be accommodated later as most SFTP users currently just use username/password authentication.