I would slot the bolt holes on the dust cover to get it to fit like it is supposed to.
You only need a by-pass valve if you are running a high pressure oil pump with thick oil, or you never change your oil (which I would highly doubt in your case).
Both the Mr. Gasket Oil Filter Adapter Kit Part Number 1270, and the Fram K98ADP adapter are used as a direct replacement for your canister filter.
I don't have a HV pump nor do I use heavy weight oil. Use 10-30 and my OP is about 20psi at hot idle and 40+psi at cruise speed
So do I have a bypass valve stock with a canister filter set up? (thought I did)
Slotting or enlarging the top holes of dust cover won't resolve the fit issue. The canister body is not allowing the dust cover to go all the way up so the top holes to get up to the tranny case holes. Bottom holes line up but the cover is "deflected" as the canister is not allowing it to go all the way up
I had to do minimal trimming of the re-pop cover around the starter opening, no big deal. The top of cover is not hitting the block, it seems to be the canister is not allowing it to go all the way up (about 1/4" more). Since the TH350 never came with a 67 with canister filter I see why there is a conflict as spin on filters, IIRC, were for 68 and on.
I will try bending in a slight curve on the part of cover to see if that gives the clearance but need to make sure I don't bend it into the FW. I could also cut a slot in the cover but would prefer not to hack it to that extent
Swapping in parts (tranny) that didn't come with the car but is a "bolt in" does have a * as footnote. In this case..."some adjustments may need to be made on dust cover to fit"..