The question here is why is a 16 year old interested in a 12 year old? I wouldn't encourage it, 12 is too young to date period.....
My daughter is 12 and dated a 16 year old, would the 16 year old get arrested if they dated? Not talking about them doing sexual things, because they are both very strong Christians and enjoy going to church and learning.
He is still under age 18. Now when he is 18 she will be 14 so that makes him a adult. Better do a double take on this
12 years old is super young! Too young! I would pull those reigns back really, really fast. Unfortunately, I can't give advice on how to do that because you've ALREADY let them go this far (hanging out, catching feelings, etc). She'll just resent you now.
But that okay, you are the parent. Don't let your children grow up too quickly - make them have a chaperon. At 16 his testosterone is most likely on fleek - you need to protect your "baby!" Your question regarding the "legal" issue will probably require professional advice. Good luck.