Instagram password automated checks

Instagram shows this on one of my account:

Keep your account secure Your security on Instagram is a top priority. Based on our automated checks, we've discovered that the password you use for Instagram is the same as one that was stolen from another site. We haven't detected any suspicious activity on your account, but we recommend you to change your password.

I wonder how extensive is their automated check and how do they compare it to Instagram credentials? Do they use the hacked credentials and compared it to their internal hashed password?