It doesn’t have to know, the processed data that is regulated is about much more than just our participation in the Fediverse. Like ip’s, analytical, usage data and so on, things that are only shared between you and your lemmy instance. That’s what’s awesome about self hosting.

Participation could fall under the same laws as email, all the other data is yours. And as another user suggested, self hosting your instance and currating federation is probably fine. I’m not a lawyer this is not legal advice